The life of an LLC begins when the articles of organization (or, in some states, the "certificate of organization" or "certificate of formation") are filed with the Secretary of State's office. Prior to filing the articles, the following issues should be considered.
1. Where should I form an LLC?
An LLC can be formed in any of the 50 states and the District of Columbia.
Many people choose to form LLCs in their home state. This may save you money, because the LLC will not need to register as a "foreign LLC" if it does business in its home state. Plus, there is no need to pay another person to serve as the registered agent.
If your home state has high annual LLC fees or income taxes, and your LLC does not do business in that state, it may be wise to form the LLC elsewhere. Doing business means more than just selling products or making passive investments in that state. It usually requires an office or an active business presence. LegalZoom can help you to form an LLC in any state you choose.
Many people choose to form an LLC in Delaware because of its history, experience, popularity and pro-business climate. Nevada has also gained popularity due to its pro-business environment and lack of a formal information-sharing agreement with the IRS. Nevada does not have corporate income taxes, and Delaware does not tax out-of-state income. Business filings in these states can usually be performed more quickly than in other states.
2. How do I choose a name for an LLC?
The exact rules vary from state to state, but in general, the name of a limited liability company must end with the words "Limited Liability Company," "LLC," "L.L.C." or "Ltd. Liability Co." A person's name can be used as part of the company name. Please note, a name will not be accepted if it is likely to mislead the public, or if it too closely resembles the name of an existing LLC.
Before you choose the name, you may want do a little research to see if the name is taken. LegalZoom will conduct a name check for you, or you can search yourself with the Secretary of State in the state where you wish to form your LLC.
If the LLC's name is used in connection with goods or services, you may want to obtain federal trademark protection for the name. This ensures that no one else in the U.S. may use that name in connection with the same general type of goods or services (except in areas where someone else is already using the name).
3. How is an LLC managed?
A limited liability company may be managed by either: (1) the members; or (2) one or more managers. A "member" is an owner of the limited liability company. If a limited liability company is managed by the members, then the owners are directly responsible for running the company.
A "manager" is a person selected by the members to manage the LLC. In this context, a manager is similar to a director of a corporation. A manager can be, but is not required to be, a member. If an LLC is managed by managers, then its members are not directly responsible for running the company.
Whether an LLC should be managed by members or managers depends on several factors, including:
- The number of owners
- The type of business
- Where the owners are located
- How involved the members will be in LLC operation
Management by members is usually the best option for LLCs that have only one member or just a few members, who are all actively participating in the affairs of the LLC. If there are many members, including some who do not actively participate in the operations of the LLC (such as silent partners), then management by managers may be the best option.
4. How are LLC officers appointed?
Regardless of how a limited liability company is managed, it can still appoint officers to run the day-to-day operations. An LLC is not, however, required to have officers. The officers are selected by either: (1) the managers, if the company is manager-managed; or (2) the members, if the company is member-managed. Members or managers may both be officers. There is no limit on the maximum number of officers, nor is there a limit on the number of offices that one person can hold. In fact, the same person may hold all offices.
5. Is an LLC required to have a registered agent?
Each LLC must have a registered agent. This is the person designated to accept official notice if the LLC is "served" with a lawsuit. A registered agent must be either: (1) an adult living in the state of formation with a street address (P.O. boxes are not acceptable); or (2) a company registered with the Secretary of State in the state of formation.
One of the advantages of forming an LLC in your home state is that any of the members, managers or officers can act as the registered agent. However, there are some advantages to having another person or company act as your registered agent. First, this adds an extra layer of privacy, since the registered agent's name and contact information are publicly available. Second, this makes it less likely that if your LLC is named in a lawsuit, no one will surprise you at home on a Sunday night with court papers.