How to form an LLC

There's more to starting a business than coming up with a great idea, writing a business plan and finding financing. A small business owner must also decide how the business should be structured. More and more business owners these days choose to form an LLC to protect their personal assets. The acronym LLC stands for "limited liability company". A limited liability company (LLC) is often described as the combination of a partnership and a corporation. Like the shareholders of a corporation, the owners of an LLC often called "members" have limited liability for business debts. If the LLC is respectively well structured and administered, each owner's personal assets will be protected from lawsuits and also from negative evaluations against the business. Each owner's liability can only be limited to the amount each has invested in the company.

What do you think will happen to your business if a customer files a claim against your business and wins? If you are the sole proprietor of your business, the customer can take everything and that most often includes your personal assets such as your house, cars, personal bank accounts and so on. Separating your personal assets from your business assets is extremely crucial. Forming a LLC can help avoiding loosing everything that you possess.

A limited liability company is fairly easy to create, more so than a corporation and forming one is the best decision you can possibly make for your business. How do you form a LLC?

First, choose a name for your business that is not already in use by another company in your state. You can call the secretary of state's office or try their online database to check whether your proposed name is available for your use. You can also consider reserving a name for future use if you don't anticipate filing formal paperwork or commonly called "articles of organization" right away. Remember that reserving a name for future use is only available for a short period of time. The fee for filing can range from $100 to $1000 depending on your state's LLC rules. After you choose your business name, the name must end with the LLC designator like "Ltd. Liability Co." or "L.L.C." and the name must not have certain words prohibited by the state. So, it's best to check with your state before selecting a name for your company. Articles of organization are simple and short documents. They can be prepared in no time at all by simply filling out the blanks and marking the appropriate boxes on the form. It will ask for your LLC name, address and the names of all the members. All the members must prepare and sign the articles or appoint a particular person to do so.

Besides following your state's LLC naming rules, you also must make sure that your selected name won't violate another company's trademark. There is a possibility that you will be required to list the name and address of one person as your "registered agent", most often someone who is a member of LLC and who will be receiving and executing all legal papers in any future lawsuit associating with your LLC. It is also mandatory that you create an operating agreement with the LLC filing office. This should include members' percentage of the interests in the business, their rights and responsibilities, their voting capability, how you anticipate to allocate profits and losses among your members, rules for important meetings that involve the interests of a member in case a death occurs or if he becomes disabled.

A few states also require that you make your company official by stating your intent to form a LLC in your local newspaper. You must publish the notice over a period of weeks then submit an "affidavit of publication" to the LLC filing office. If you should have any questions or concerns, your local newspaper should be able to help.