This is a LLC formation to-do and information check list, which includes information that the founder of a new LLC will likely need to know regarding the next steps in starting the business and complying with legal formalities.
LLC Formation Checklist This checklist can be used to ensure you are completing required steps when forming a new LLC. Important formation tasks such as checking business name availability, filing an LLC articles of organization, drafting an LLC operating agreement, opening a bank account, and hiring employees is explained in detail. In addition, this checklist specifies why a certain action needs to be taken, whether it’s one-time or repetitive, the due date, whether the action is state specific, and what triggers a required action. This checklist is ideal for newly formed LLCs that want to ensure they are completing all required tasks. LLC FORMATION TO-DO AND INFORMATION CHECK LIST 1. Business Name Availability Choose the Name of your LLC and make sure it is available with your Secretary of State (“SOS”). Name availability search can often be done on your state’s SOS’s website. Additionally, if you want to do business under your LLC’s name, also check to make sure the trademark and/or service mark is available with the United States Patent and Trademark Office (“USPTO”). A basic Trademark search can be done on the USPTO’s website; however this search is fairly complicated and might not be conclusive. You might consider talking to an attorney about performing this search for you. State trademark and/or service mark searches should also be considered. You will also want to consider checking to see if the domain name associated with your chosen business name is available, as well as performing a search of local phone books and directories to see if any local businesses are currently operating with the same or a similar name that did not appear in your other search results. o Why? If the LLC name is not available with your SOS, your LLC’s paperwork will be denied and you will have wasted your time with the paperwork and filing fee. If the trademark is not available, if and when you eventually apply for trademark, your application will be rejected and you will have wasted your time with the paperwork and the filing fee (which exceeds $300). The same is true of your business’ potential domain name – you do not want to invest in forming an LLC and registering a trademark only to find that the valuable online domain name presence your business needs is unavailable. A local search of business names will help to assure that you are aware of any businesses operating with the same or a similar name that have not taken the additional steps and filed the name with the Secretary of State or registered its trademark. Just because another business has not registered its trademark does not mean that it does not have legal rights to that name. Questions as to the legal rights to a business name should be addressed to a legal professional. o One-time or repetitive? These availability searches are a one-time task for each potential name. o Due Date? You should do this before you attempt to form your LLC. o State Specific? The procedures for searching the state SOS database and the state trademark/service mark database may differ from state to state. o What Triggers? You have decided you would like to form a LLC. 2. Articles of Organization Prepare your LLC’s Articles of Organization (“Articles”), have the Articles signed by the incorporator and file the Articles with the Secretary of State’s Office, paying the filing fee and requesting an extra certified copy. Template Articles are available on your Secretary of State’s website. o Why? Articles are your LLC’s formation document, and are required to be filed with the Secretary of State. You must pay the filing fee for your State to process the paperwork. The reason you request an extra certified copy is so you will have an original copy for your files. o One-time or repetitive? Preparing and filing the Articles is a one-time task. o Due Date? You must prepare the Articles before you will have a valid recognized LLC. o State Specific? Each state has its own rules and regulations regarding what must be included on the Articles, some states don’t even call them articles. If you would like a detailed and attorney reviewed sample Articles, a sample specific to your state can be purchased on docstoc.com, otherwise forms can often be found on the website of the Secretary of State of your state (for example, in California: http://www.sos.ca.gov/business/llc/forms/llc-1.pdf can be used). The filing costs and other fees are also state specific. o What Triggers? You have decided you would like to form a LLC. 3. LLC Operating Agreement Prepare and have the members execute an LLC Operating Agreement. The Operating Agreement is an important document that governs the LLC’s internal procedures, such as voting, member rights, manager rights, etc. o Why? The Operating Agreement is the most important document for an LLC, it sets forth whether the LLC is member-managed or manager-managed; the number of members; the rights and duties of the members; how new members are admitted; how profits and losses are split; dissolution rights; termination issues; and many other issues. In addition, in many states (including California) an Operating Agreement is required by law. In states like California, which have community property laws, spousal consents should be included. o One-time or repetitive? The Operating Agreement is drafted once, but can be amended over time if issues arise. New members will need to sign the Operating Agreement as well. o Due Date? The Operating Agreement should be drafted and executed immediately following the SOS’s approval of the Articles. o State Specific? While an Operating Agreement is necessary for all LLCs to dictate rights and responsibilities, states may have their own requirements as to what must be included in the Operating Agreement. o What Triggers? Approval of the Articles by the SOS. 4. Organizational Minutes Draft and execute LLC Organizational Minutes. o Why? Organizational Minutes, while not required of LLCs, are very important. These minutes allow the LLC to formalize its appointment of managers, officers and other important resolutions such as the decision to obtain a Federal Identification number, open a bank, choosing of a tax status and many of the other tasks described herein. o One-time or repetitive? Organizational minutes are a one-time task that is specific to the organization of the LLC. Thereafter, the LLC can have formal meeting minutes if the members so desire, but the LLC corporate structure is not formal and does not require it. o Due Date? The Organizational minutes should be drafted and executed immediately following the execution of the Operating Agreement. o State Specific? Generally, Organizational Minutes are not state specific. o What Triggers? Approval of the Articles by the SOS. 5. Issue Membership Interest Certificates Draft Membership Interest Certificates and Membership Interest Ledger. o Why? Membership Interest in an LLC is like stock in a corporation. It is important to keep track of how much Membership Interest has been issued, how much is outstanding and how much each LLC member has. o One-time or repetitive? For the initial membership interests, this is a one-time task, however if a new member is admitted, or an existing member obtains additional interest, new Membership Interest Certificates will need to be issued and the Membership Interest Ledger will need to be updated. o Due Date? Membership Interest Certificates should be issued when members contribute capital or other consideration to the LLC. The Membership Interest Ledger should keep track of all Membership Interests that are issued. o State Specific? Particular states may have requirements regarding whether the Certificates are mandatory or optional, so you should research your particular state’s laws. o What Triggers? The issuing of Membership Interest to Members of the LLC. 6. Notice of Transaction If state law requires, the LLC should file a Notice of Transaction with the Secretary of State or Commissioner of Corporations and the filing fee should be paid. o Why? In several states (including California) this is mandatory when Membership Interests are issued. In California, the filing should be done electronically at http://www.corp.ca.gov/. o One-time or repetitive? A notice of transaction should be filed every time Membership Interests are issued to the LLC. o Due Date? This is state specific. In California, it is due 14 days after Membership Interest is issued. o State Specific? A Notice of Transaction is state specific in whether it is required, under what circumstances it is required, the due date and the filing fee amount. You should research this information regarding your state’s particular regulations. o What Triggers? The issuing of Membership Interests in the LLC. 7. Employee Identification Number Prepare, execute and submit to the IRS Form SS-4 (Application for Employer I.D. Number), this can be done on paper, printable at: http://www.irs.gov/pub/irs-pdf/fss4.pdf, or can be applied for online at: https://sa1.www4.irs.gov/modiein/individual/index.jsp. o Why? The Employer Identification Number (“EIN”) is the LLC’s Social Security Number (Social Security Numbers can only be issued to people; EINs are issued to businesses). This number is necessary to open a LLC bank account and also for tax reasons. Some of the questions on the EIN application have tax implications, so it may be necessary to consult an attorney or tax professional. o One-time or repetitive? Obtaining an EIN is a one-time task. o Due Date? You should apply for an EIN promptly following approval of the Articles by the SOS. o State Specific? An EIN is issued by the Federal government and accordingly is not state specific. o What Triggers? The need to get a bank account, hire an employee, file taxes and/or other reasons to obtain a Federal identification number. 8. Open LLC Bank Account Open an LLC bank account. Remember to bring: the Articles file stamped by the SOS, your EIN and Organizational Minutes. o Why? It is important to have an LLC bank account for multiple reasons. First off, one of the reasons that an LLC is an ideal business form is it is its own legal person. This means that the LLC (and not you, its member) will be the proper “person” to be sued by a third party. This “corporate shield” can protect you, as an individual, from getting sued as a result of actions taken by the LLC, but in certain instances, the shield can be pierced and the members of the LLC can be held liable. A frequently used way to pierce the LLC’s corporate shield is to prove that the LLC is a fraud and the members are not treating the LLC as an entity separate and distinct from the members individually. One way to treat the LLC as an entity separate and distinct from the members is to open and maintain separate bank accounts and to be careful not to comingle LLC and personal funds. Additionally, having a separate bank account allows for your LLC to establish its own credit. o One-time or repetitive? Opening an LLC bank account is a one-time task. o Due Date? The LLC bank account should be opened once you have SOS file- stamped Articles, an EIN and Organizational Minutes which authorize opening the account. o State Specific? No. o What Triggers? The need to open a business bank account. 9. Statement of Information Complete, execute and file the Statement of Information (“SOI”) with the Secretary of State. o Why? Many states require the SOI to be filed with the Office of the Secretary of State. Failing to file can result in penalties and/or dissolution of your LLC. o One-time or repetitive? In most states, this is due repetitively, often annually or semi-annually. o Due Date? In many states (including California), the first SOI is required to be filed within ninety (90) days following the filing of the Articles. But, you should research your particular state’s rules. For subsequent filings, you must determine when the SOI will be due. In California, the subsequent SOI will be due semi-annually. Your Secretary of State will likely send you a notice about the deadline, but failure to receive such a notice will most likely not be a valid excuse for failure to file. o State Specific? As indicated above, the timing and rules regarding filing of the SOI is state specific. o What Triggers? You formed a LLC and desire for it to remain active. 10. Pay Annual Taxes Pay any required annual estimated minimum tax required by your state. o Why? Upon registration, many states (including California) require the pre-payment of a minimum tax. Failing to pay can result in penalties and/or dissolution of your LLC. o One-time or repetitive? In many states, this first estimated tax is a one-time task. In the future the LLC would be required to pay actual taxes. o Due Date? In many states (including California), the payment is payable within ninety (90) days following the filing of the Articles. But, you should research your particular state’s rules. In California, if you do not elect to be taxed as a corporation, you must pay the Franchise Tax Board an estimated minimum tax of $800. o State Specific? As indicated above, the timing and rules regarding this estimated minimum tax is state specific. o What Triggers? You formed a LLC and desire for it to remain active. 11. Tax Election In general, for federal income tax purposes, an LLC can elect to be taxed as a sole proprietor, a partnership, or a corporation (type C or type S). This decision has significant tax consequences, so before making such an election it would be valuable to contact a tax professional. The entity classification election is filed with the IRS on Form 8832, available at http://www.irs.gov/pub/irs-pdf/f8832.pdf o Why? This is required by the IRS, to determine how the LLC can be taxed. If you do not file, the IRS will apply default rules choosing your LLC’s tax status. o One-time or repetitive? The filing of Form 8832 is a one-time task, though you may be able to change such tax election at a later date by refilling Form 8832. o Due Date? Prior to the filing of the LLC’s first taxes, but to be safe should be done as soon as possible following formation. o State Specific? No. o What Triggers? Formation of the LLC 12. Hire Employees Prior to hiring an employee, the LLC should have the new employee execute an employer- employee agreement and file appropriate paperwork with the appropriate state authorities. Regarding the state paperwork, this can often be found online, for example, in California, Form DE1 should be completed and filed with the Employment Development Department (http://www.edd.ca.gov/pdf_pub_ctr/de1.pdf). o Why? Employer-employee agreements are important to dictate each party’s rights and responsibilities, benefits, termination procedures and salary. Employer state paperwork is often mandatory. o One-time or repetitive? The employer-employee agreement is a one-time task for each newly hired employee, though amendments may be required to extend the duration of employment or adjust other terms of the agreement. The state paperwork will vary depending on what your particular state agency requires. o Due Date? The employer-employee agreement should be executed prior to commencement of employment; the state paperwork due date will vary by state, but often will be due immediately upon commencement of employment of first employee. In California, Form DE1 is due within 15 days of paying an employee more than $100. o State Specific? The employer-employee agreement may be state specific regarding particular state law issues and provisions. The state paperwork will be state specific regarding what form to use, what the filing fee is and when it is due. o What Triggers? The hiring of an employee. 13. Hire Independent Contractors Prior to hiring an independent contractor, the LLC should execute an independent contractor agreement and file appropriate paperwork with the appropriate state authorities. Regarding the state paperwork, this can often be found online, for example, in California, Form DE542 should be completed and filed with the Employment Development Department (http://www.edd.ca.gov/pdf_pub_ctr/de542.pdf). o Why? Independent contractor agreements are important to dictate each party’s rights and responsibilities, benefits, cancelation procedures and payment. Independent Contractor state paperwork is often mandatory. o One-time or repetitive? The independent contractor agreement is a one-time task for each newly engaged contractor, though amendments may be required to extend the duration of the engagement or adjust other terms of the agreement. The state paperwork will vary depending on what your particular state agency requires, but often will be required for each independent contractor the LLC hires. o Due Date? The independent contractor agreement should be executed prior to commencement of the engagement, the state paperwork due date will vary by state, but often will be due immediately upon commencement of the engagement. In California, Form DE542 is due the earlier of 20 days following of the execution of an agreement agreeing to pay $600 or more to the independent contractor or 20 days following the actual payment of $600 or more to the independent contractor. o State Specific? The independent contractor agreement may be state specific regarding particular state law issues and provisions. The state paperwork will be state specific regarding what form to use, what the filing fee is and when it is due. o What Triggers? The hiring of an independent contractor. 14. Non-Disclosure Agreements A Non-Disclosure Agreement (“NDA”) should be executed with all persons who will be privy to LLC information that is confidential or proprietary. o Why? There are many reasons an NDA might be necessary. Perhaps your LLC wants to share information with venture capitalists for potential funding, or with another company for a potential merger or acquisition. Perhaps your company plans to enter into a deal with a manufacturing plant and you need to share how they would manufacture your product. There are many reasons a young LLC might require an NDA. o One-time or repetitive? An NDA is required each time your company plans to share information that is confidential or proprietary. o Due Date? The NDA should be executed prior to the sharing of confidential or proprietary information. o State Specific? The NDA may be state specific regarding particular state law issues and provisions. o What Triggers? The LLC’s desire to (i) share information and (ii) maintain the confidentiality of the information. 15. Obtaining Trademark Protection If your LLC is the source of goods or services and you desire to protect your brand and/or product name trademark(s) should be acquired from the USPTO. The application cost for a trademark is currently $325, per class, if filed online at http://www.uspto.gov/trademarks/teas/. Obtaining and maintaining a trademark is often a tricky and nuanced process, therefore it is advisable to retain an attorney to assist you with the process. o Why? Registration of a trademark or service mark with the USPTO protects your brand and/or good or service, and allows you certain rights if your competitors try to confuse the public and make money off your brand/product name. o One-time or repetitive? The initial trademark registration is a one-time task, but generally, a renewal must be filed after six (6) years and at other deadlines set by the USPTO. o Due Date? There is no particular due date, but it is advisable to file your application as early as possible. You cannot get a trademark registration until your good or service is actually in use in interstate or international commerce, but you can file an intent-to-use application before such actual use. o State Specific? No, the USPTO is for federal trademark. If you are denied a federal trademark, you can look into applying for trademark under your state laws. o What Triggers? Wanting to obtain trademark protection. 16. Register Your Fictitious Business Name If your LLC desires to do business under a different name other than the name of the LLC, you should file a Fictitious Business Name Statement with your County Clerk. These can also be called an Assumed Name filing or Doing Business As or DBA filing. These filing forms can often be found at the County Clerk’s website for your county, for example, in Los Angeles County the form is located at: http://www.lavote.net/GENERAL/PDFS/FICTITIOUS_BUSINESS_NAME.pdf. In addition, most counties require publication of the fictitious business name in a newspaper or other publication. o Why? If your LLC is doing business under another name, registration is required. o One-time or repetitive? Generally this is a one-time task. o Due Date? You should register prior to doing business under the assumed name. o State Specific? As indicated above, this is county specific, each county will have its own requirements, filing fees and forms. o What Triggers? Wanting to do LLC business under a different name. 17. Obtain Requires Licenses and Permits Your LLC should determine whether it needs any permits or licenses from regulatory authorities having jurisdiction over the LLC, and if so, apply for and obtain said required permits and/or licenses. o Why? There are often fines and penalties if you do not obtain such required permits and licenses. o One-time or repetitive? This can vary depending on what sort of permit and/or license is required. o Due Date? This can vary depending on what sort of permit and/or license is required. o State Specific? Some permits and licenses are granted at the federal level, others are granted at the state or local level. o What Triggers? If the LLC engages in conduct that requires such a license or permit.
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