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Forming and Dissolving an LLC

UPDATED: February 8, 2020

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How to Form an LLC

Formation of a limited liability company (LLC) is fairly simple. The following steps are recommended: 

Choose a Name

The first step is to choose a name for your LLC that complies with the rules of your state. For instance, you must make sure that your name does not violate another business's trademark. Also, you will not be able to have the same name as another registered LLC, and “Limited Liability Corporation,” or “LLC” must always follow your business name.

File Articles of Organization

After you have chosen your name, you must file paperwork, called the Articles of Organization or sometime Certificate of Formation, with your Secretary of State’s office. This is usually a straightforward process, and can be done by finding the rules and associated fees on your Secretary of State’s official website. Usually states will have a simple fill-in-the-blank form that asks for basic information such as the business name, address and manager's contact information. The filing fee for forming a limited liability company will depend on the state, but overall costs to form an LLC typically range from $100-$800. 

Draft an Operating Agreement 

Next, while it is not mandatory, it is highly recommended that you create an operating agreement. This will not need to be filed with the state but will give your LLC a solid management structure that will be attractive to potential investors. An operating agreement should include member percentages of interest, duties of individual members, voting powers, how losses and profits will be allocated, and other types of managerial requirements.

Obtain Licenses and Permits

After you have completed these steps, usually the only thing left to do is to obtain the required state business licenses and permits. Also, some states will require that before your LLC is official, it be published in your local newspaper for several weeks.

Have a Professional Review Your Paperwork 

While it is not always necessary to hire a lawyer to form a LLC, it is advisable that you have a business attorney look over your paperwork, so that your interests are protected.

How to Dissolve an LLC

Before dissolving your LLC, determine each individual’s percentage of interest in the LLC, as well as all the assets. If you are dissolving the LLC amicably, the procedure is usually fairly easy. 

Articles of Termination

Articles of Termination must be signed by all members and filed with the Secretary of State, and Form 966 must be filed with the IRS to complete the process of terminating an LLC.

The Buy-out Provision 

In some states, the statutory default provides that an LLC is terminated if a member leaves the entity. However, this general rule can be altered in an operating agreement by providing a buy-out provision. This means that if a member leaves, other members will agree to buy that member's interest in the business.

Dividing Assets and Informing Creditors 

If the members determine that they all want to dissolve the LLC, they must divide all the entity assets and pay all remaining debts. If remaining debts cannot be paid immediately, your creditors will need to be contacted and informed of where to send remaining bills.

You Need Two-thirds Approval to Dissolve 

If you want to dissolve your LLC due to problems between members, this can be a more difficult process. Usually, with two-thirds approval, you can dissolve your LLC. However, if you do not have this approval, the issue may need to be taken to court for resolution.


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