LLC Formation To-Do and Information Check List

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									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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