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USA LLCs in a Nutshell - Part II (How to form a LLC)

From www.Gasgoo.com| February 25,2007

The second part of the series about USA LLC basics describes step by step how you can create your own Limited Liability Company in the United States

How to setup an LLC in the USA
While you may not yet know all details about doing business in the United States and the U.S. Legal System, founding a LLC is actually not that difficult. Almost every piece of information you may need to set up your LLC is available on various sources - most of them through the Internet. The challenge as a cultural outsider is to figure out, which information is important and what is rather irrelevant and/or only applies to rare circumstances. The intention of the following instruction is to give you the "big picture" rather than going into too many details. Details are important and you will need to get into those, but for right now we just try to understand the very basics. Also, do always check details with Legal Professionals and official U.S. government sources before taking any action.

Prerequisites: LLC Members, the LLC Name and More
A USA LLC needs first of all a very important essential: members. A LLC member is the person who is owning a share or all shares of the LLC. While the Word "Company" in the term "Limited Liability Company" implies, that there should be more more than one person, only one member for an American LLC is sufficient in all US states.

The second essential to form your LLC is to find a name for your new LLC. You need to ensure that the name you are abou to choose is not already registered in the state you want to establish the business in. Most states offer free databases accessible via the internet for name search on registered companies. You also should double-check that the name you are about to choose is not protected by U.S. Trademarks or Service Marks. Finally, there are certain requirements on how the status of the Limitation of Liability needs to be represented in the name of the LLC. Typically there is an affix with the word "LLC" required which varies slightly state by state.

Third, you need to decide where the LLC should be established. Generally, it is not necessary to establish the LLC in the same state where the business will be operated. Some legal professionals often prefer to file the LLC in the State of Delaware since it supposed to have very business-friendly laws. However if you are doing business in let's say Iowa and form the LLC in Delaware, the laws of Iowa apply for most business activities anyways since the business is performed in Iowa. The laws of Delaware would only kick in for issues related to the LLC itself, such for example the way the members handle their business with each other. Other than that you probably want to setup the LLC in the same state you are doing business in.

Filing the LLC Articles of Incorporation
After deciding on who will be a LLC member, the name of the LLC and in which state you would register it, the next step would be to file "LLC Articles of Organization" with the respective state's filing office. Most U.S. states handle the way LLCs are filed similar, but some details usually vary. Simply check the details with the respective states' filing office regulations. The detailed filing regulations and forms are usually available from filing office of the state you want to establish your LLC in.

Some states require that the Articles of Organization are filed using a provided form whereby optional provisions would be attached. Other states simply accept standard letter-sized papers with the complete Articles of Organization. Either way, some information are mandatory and typically look like this or similar:
 Heading "Articles of Organization of [LLC name]"
 A sentence similar to: "The undersigned person(s) of the age of 18 years or more, acting as organizers of a limited liability company under the state of [state name] hereby adopt the following Articles of Organization"
 Name of the Limited Liability Company
 Name and Address of the person registering the LLC. The person filing the LLC has to be a resident of the respective state and provide a street address. He or she also needs to be authorized to receive legal correspondence from the state. Some companies are paying a Registered Agent to take over this role if they are not located in the same states. However, keep in mind that these persons' only job is to have the ability to receive mail. Other than that they have no legal responsibility towards anything, so do not overpay them!
 The purpose for which the company is organized. There are different options on how to phrase that. By specifying exactly what your company is doing (e.g. "selling computer software"), you may limit the LLC if you want to enhance the business later and sell other products, too. A general statement such as "engaging in any lawful act or activity for which LLCs may be organized in the state of [state name]" gives more options, but excludes the main business purpose. The best phrase is probably to combine both such as: "The purpose of this LLC is [to sell computer software] and to engage in any lawful act or activity for which LLCs may be organized in the state of [state name]"
 The principle office: The place where the business physically residues (mail boxes are usually excluded)
 The date when the LLC dissolves: Most states require to specify the duration of the LLC. Some require a maximum of for example 50 years, but you can of course file for an extension.
 Signatures of the persons forming the LLC

After sending the forms and papers to the state's Filing Office, you usually will get a kind of confirmation within a couple of days (sometimes even within a couple of minutes if your state offers online filing) and the LLC is ready to go. However, there is often more potential paperwork included. This is especially referring to how the LLC is managed and how the owners define responsibilities among each other. This is typically written down in an LLC Operating Agreement. While an USA LLC Operating Agreement is not a legal requirement, it is highly recommended for any LLC with more than one member to define responsibilities among the owners. Without a LLC Operating Agreement there may be certain default regulations kicking in which will define how for example profits are distributed among the owners.

USA LLCs - Wrapping it Up
As mentioned in the introduction to this article, some things relating to forming a LLC can be intimidating. Issues like liability, state law, federal law, taxes, filing offices, trademarks and so on can be a lot to chew on. Still, when looking at the big picture, forming a LLC in the USA is not that difficult and can be done without 10 years of American law school. Still, a professional American lawyer is a great help in the whole process. He or she typically knows a lot about all the details and brings in years of experience. A lawyer is also able to double-check certain issues and potentially form the LLC and all related paperwork for you. Finally a lawyer can also enable you to focus on other issues rather than you trying to become a legal professional by yourself.

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