McBride Law Blog

Setting Up an LLC: Distinctively Easy, But Surprisingly Difficult

McBride Law Blog

// R. Shawn McBride // No Comments »

Many people set up their own limited liability companies. You’ll find it’s easy to set up an LLC, but hard to do it correctly. You can call upon a service such as “LegalZoom.com” to get forms for a very low price. However, those forms don’t come with custom-tailored advice, and that’s often where the problem arises. Here are the basic steps to form an LLC and what can go wrong along the way.

Step 1. Set up a company and give notice to the state. The state is usually notified by filing a certificate of formation, or similar document with the state filing office, usually the secretary of state. That filing office then indexes your filling, to put the world on notice that a limited liability company exists. In most states, the information requirements for a certificate of formation are minimal. They don’t have nearly as many requirements as what you would have to put into a corporate document, for instance. An LLC can sometimes be formed by just having the name, the mailing address of the principal office, the office of the registered agent, the person who gets notice if you get sued, and the name of the organizer. These are deceptively simple to fill out, and many people fill this out and file it.

Step 2. Draw up an LLC agreement. Some states require an LLC agreement. If you look at the Delaware code, it’s fairly clear that it contemplates that there should be an agreement for the LLC. Other states are less clear. However, it’s advisable to still have an LLC agreement, even if not explicitly required by your state statute. Why? Because it sets forth who owns the LLC and how the LLC works. An LLC agreement would be an important piece of evidence in the event of litigation of the ownership, or other management control issues.

Step 3. Protect yourself. It’s deceptively simple: If you file a certificate of formation and set up an LLC in most states, you have an LLC. The real work begins after the formation. First, you want to make sure the certificate of formation and LLC agreement are set up to protect you. We’ve seen many mistakes made during the formation process that exposes the owner to potential liability or future risks. The whole point of setting up an LLC is to minimize those exposures and risks. With an accident, you might circumvent the whole intended purpose of all your work and effort and use of money. You also need to think about the long-term management of your LLC. How will it work? How will it run? How will you make sure that things are done to protect you from liability in the future? This is where the real work starts.

And there you have it, forming an LLC in three steps. Of course, there’s a lot of complexity that goes into what goes into the LLC agreement, particularly if you have multiple owners. You need to think a lot about what to do after you’ve formed your LLC.

Have you formed an LLC? Do you think you may have made a mistake? What will you do differently in the future? Join us in the comments below and let us know about your thoughts and experiences.

Each case is unique.  Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique.  Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages.com Photographer Martin K.

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Posted In: LLC

Facebooktwittergoogle_pluslinkedinmailAbout the Author Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email or call (214) 418-0258.


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