LIMITED LIABILITY COMPANY: The What and How to build an LLC

*This information is based off of the requirements of Massachusetts. Please contact an attorney in your area for requirements.

WHAT IS AN LLC?

An LLC is a Limited Liability Company. It combines the taxation of a partnership or sole proprietorship with the liability of a corporation. Basically, it takes pieces from each entity type and creates a hybrid entity. Any liability claim will need to pierce the corporate veil (same as in corporations), but it still provides flexibility for the company members, more so than a corporation (more like a sole proprietorship). LLC members get to determine how they will be governed. When there are multiple members, however, it is best to have an Operating Agreement.

BENEFITS OF AN LLC

1. Choice of how you're taxed;
2. Protection from all or some liability regarding acts or debts of the LLC (please note, some states do have different shield laws. Please consult an attorney in your area for specifically applicable laws);
3. Much less paperwork than corporations; and
4. Can be established with just one person.

DISADVANTAGES OF AN LLC

1. Higher renewal fees; and
2. No requirement for an Operating Agreement can cause future issues for companies who abstain from drafting.

Most Secretary of State websites will walk you through the creation of an LLC. But here are the BASICS:

First, you already know it and you've probably already done it. NAME YOUR LLC. It can be pretty much anything you can conjure up, excluding Bank or licensed individual names, such as Doctor, which are considered "Restricted Words*." It also cannot include any name that could be confused or conferred as a federal or state agency ("Prohibited Words").  Your name MUST include the words Limited Liability Company in some form or another (i.e. LLC or L.L.C.).

*Restricted words require additional paperwork. Consult an attorney in your area for more specific details pertaining to your particular prospective LLC.

Second, make sure your name is available. In Massachusetts, on the Secretary of State Corporations page there exists the ability to search the database and make sure your name hasn't already been taken and if it has not to register it to prevent anyone else from using it. Make sure your name is available so your application is not rejected. Also, it is a good idea to register your name. Common Law Trademark exists which could qualify you to have a service mark or name as a trademark without registration but sometimes the best proof is actual proof. If you register your name early, you can deter some people from infringing upon it. Additionally, before you register the name, make sure the domain is available. It's always nice for people to be able to find you easy just by using your company name as your web domain and you have get an email address with the domain name as well.

Third, A registered agent is a REQUIREMENT. A registered agent is simply someone who can accept mail on your behalf and do other business tasks such as your state filings. It must be a resident of the state of Massachusetts or a corporation who has authority to conduct business within the state. Let me say this again so it's clear, that person MUST be a state resident OR a corporation who is AUTHORIZED to conduct business in Massachusetts. It can be any designation, someone inside or outside the company, so long as those requirements are met.

From there comes the important legal stuff:

First, obtain an Employer Identification Number ("EIN"), it can be done right online through the IRS website (don't be scared). Once that is done fill out and submit the Domestic Limited Liability Company Certificate of Organization form (required in Massachusetts) and lastly pay the $500 organization fee. The Certificate is VERY basic. It will only ask for information such as address, registered agent, character of the business, etc. For this reason, it is very important to have an Operating Agreement. Operating Agreements ensure that when times aren't easy there is a formula to keep the business running as smooth as possible, it has exit strategies for members and designations on responsibilities for members, etc. Make sure to consider creating an Operating Agreement and should you choose to do one, contact an attorney to help you meet those needs.

Business licenses to operate may also be required. To make sure you're operating correctly under the laws, contact an attorney who can assist you with your specific needs.

As always, please note, information here is just to give a general overview. It is very important to always work with an attorney to ensure that your specific needs are being met and your specific circumstances are in accordance with the laws of your governing state.