Forming an LLC

Forming an LLC

Can I form a 1-member LLC?

Yes. An LLC can have only one owner.

If I am a non-resident alien, can I form an LLC?

Yes. A non-resident alien (a person who is not a citizen or national of the United States and who is in this country on a visa or temporary basis and does not have the right to remain indefinitely) can be an owner of a LLC. An S-corporation cannot have a non-resident as a shareholder.

Can I convert my existing business to an LLC?

Yes. Changing a sole proprietorship or a partnership to an LLC is a simple method for sole proprietors and partners to protect their personal assets without changing the way their business income is taxed.

What paperwork is required to form an LLC?

Articles of organization must be prepared and filed with the Secretary of State and filing fees and other initial fees must be paid. An Operating Agreement must also be prepared.

How is the formation of an LLC different than a corporation?

With an LLC, Articles of Organization are filed with the state rather than Articles of Incorporation. Additionally, instead of bylaws, LLCs generally utilize an Operating Agreement to set forth the organizational structure of the entity.

What are Articles of Organization?

Articles of Organization are equivalent in general form to a corporation’s articles of incorporation. The Articles must be filed with the Secretary of State to begin existence.

What is an operating agreement and why do I need one?

To validly complete the formation of the LLC, members must enter into a written Operating Agreement which sets out rules for the ownership and operation of the business (much like a partnership agreement or stockholder agreement). An operating agreement usually includes:

  • The members’ percentage interests in the business
  • The capital contributions to be made by each member
  • The members’ rights and responsibilities
  • The members’ voting power
  • How profits and losses will be allocated among the members
  • How the LLC will be managed
  • Rules for holding meetings and taking votes, and
  • “Buy-sell” provisions, which establish rules for what happens if a member wants to sell his interest, dies or becomes disabled.

An LLC operating agreement is necessary to:

  • Help ensure that courts will respect your personal liability protection by showing that you have been diligent about organizing your LLC. Failure to draft an operating agreement could be used by a plaintiff to pierce the veil of limited liability. This could lead to unlimited, personal liability for the business debts.
  • Govern how profits will be split, how major business decisions will be made, and dictate procedures for handling the addition and departure of members.
  • Help to prevent disputes among members and provide methods to resolve disputes without the need for costly and emotionally draining litigation.
What are Members in an LLC?

Members are considered the owners of the LLC, just as shareholders are the owners of a corporation.

What are Managers in an LLC?

An LLC may have one or more managers who are responsible for managing the LLC on a daily basis. When one manager is appointed, he/she effectively holds the same role as the President of a corporation. When two or more managers are appointed to manage an LLC, the structure likens that of a board of directors in a corporation.

What is a registered agent and why do I need one?

State law requires that a corporation or LLC designate an agent responsible for receiving important legal and tax documents on behalf of the company. The registered agent should be generally available at the address during standard business hours. Please note that a corporation or LLC cannot be its own Registered Agent.