Transitioning your business from a sole proprietorship to a limited liability company (or LLC) can be one of the most important steps you can take to protect your personal assets.
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Example H2 Example H3 Example H4 Example H5 Example H6 Tired of doing your own books?This business transition comes with a host of benefits: not only are your personal assets safe if your business is sued or incurs debts, but you can avoid double taxation, establish business credibility, raise capital more quickly, and enjoy greater flexibility in how you run your company.
LLCs are formed at the state level, so the exact requirements differ by state, but a few steps are needed to get the ball rolling. Once you’ve picked a state of organization and chosen a business name, you’ll need to file your articles of organization
Also sometimes referred to as a certificate of formation or certificate of organization, articles of organization is the official legal document that establishes your LLC at the state level.
Your articles of organization highlight important information about your LLC, like its name, address, members, purpose, and structure. The articles of organization also include contact information for the business’s registered agent, the amount of common stock, and the number of authorized shares.
You must file articles of organization with the business filing agency in the state where your business is operating. To find your state’s form, visit your state government’s website.
They are not. Articles of organization and articles of incorporation are similar filings, with one main difference: articles of organization are part of the legal process for forming an LLC, while business owners file articles of incorporation to create a corporation (C corporation or S corporation).
LLCs are an entirely different business category under the Internal Revenue Code, but both the articles of incorporation and articles of organization serve the same purpose: to legally form your business.
The type of business entity and structure you want depends on your specific needs and situation. To decide which option is right for you, it’s always best to consult with a lawyer and other business professionals.
Each state will list its specific requirements and procedures to form an LLC based on its jurisdiction business laws. Basic information typically includes:
Before getting started, keep in mind that:
Before you can form an LLC, you’ll have to choose an entity name that’s available for use in your state. It needs to end with “LLC,” “L.L.C.,” or “Limited Liability Company” and doesn’t violate another business’ trademark.
Online directories like the Better Business Bureau or Google can help, but check your state database (here’s California’s Business Search tool) to see if an existing LLC is already using your desired name. Once you’re ready to register, your state’s business filing agency will also confirm that you can legally use your chosen business name.
A registered agent is an individual or business that will accept legal papers on behalf of the LLC if it’s sued. All LLCs must have one in order to operate.
When choosing a registered agent, keep in mind the agent must have a P.O. Box or street address in the state where your LLC is registered. Commercial registered agents are also available for a fee in most states. An LLC member can also operate as a registered agent for the LLC.
Since the requirements for forming an LLC differ by state, it’s important to contact your Secretary of State office or business filing agency to find the requirements for filing articles of organization in your state. Be sure to confirm information like:
As mentioned earlier, the Secretary of State office or website will give you the details on how you can file, whether it’s online or by mail. Some states offer the option of completing a fillable PDF form or using an e-filing portal.
There’s a cost to file your LLC articles of organization. LLC filing fees vary based on your location and can range anywhere from $40 to $500.
Most states will process your articles of organization within 7 to 14 business days. There’s an additional fee if you want to expedite the process. If you have to change the information in your articles of organization form, follow your state’s procedures to make those amendments.
After your documents have been processed, you’ll receive an acceptance certificate from your state. This legal document confirms that the LLC was duly formed and is officially recognized as a legal entity in the state in which it was filed.
Along with this certificate, they will usually include a certified copy of your articles of organization.
If your LLC resides in New York, Nebraska, and Arizona, you must publish your notice of formation in the local newspaper.
Once the paperwork is out of the way, there are a few more things to consider to maintain your LLC.
After you file, you’ll also need to:
Your LLC can be managed by your members of the LLC or a group outside of your company like a board of directors. Managers vote on matters such as taking out a loan, buying real estate, or changing strategic plans.
Most states don’t require it, but it’s good practice to have an operating agreement that sets out how you will manage your LLC. Without one, state law will govern how your LLC operates.
Many states want LLCs to file an annual report to maintain good standing. Fees for this vary by state but can range from $10 up to $3,000. Failure to file an annual report on time can lead to hefty fees, fines, and even losing your company registration.
If you plan to do business in a state other than the state where you formed your LLC, you must register in that state and appoint a registered agent to accept “service of process,” which means notice of legal action. The registered agent will receive lawsuits and other documents on behalf of your business.
How Bench can help
Changing your business structure means new filing requirements for the IRS and separating your accounting books. Your Bench bookkeeper will walk you through what a change in structure means for your business to ensure your financials are up to IRS standards.
Come tax season, we’ll even help file your taxes with minimal input on your part. With Bench by your side, you’ll get tax preparation, filing, and advisory services, so you’re supported no matter where your business takes you.
While it’s only one of the steps to creating an LLC, filing your articles of organization is a critical step. Be sure to research state requirements and ask both legal and accounting professionals for guidance in the process to cover all your bases. Making an informed decision will help give your new LLC a good head start.
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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.