What is the First Step in the Formation of an LLC?

what is the first step in the formation of an LLC

The first step in the formation of an LLC is preparing and filing articles of organization. These documents must include a name, principal place of business and management type.

You may also need to create an LLC operating agreement that outlines the members’ ownership interests, responsibilities, voting rights and how profits will be distributed. This document protects owners’ personal assets in the event that their LLC is sued.

Articles of Organization

The first step in the formation of an LLC is filing articles of organization with your state. These documents outline your business and are reviewed by the state’s secretary of state or company registrar.

Most states have a ready-made form on their websites that you can use, which takes the stress out of creating the document yourself. However, the requirements for what you must include in your Articles of Organization and how you must submit them vary from state to state.

Regardless of the specifics, your Articles of Organization must meet your state’s requirements to be legally effective. Failing to do so can preclude your business from enjoying the limited liability protection offered by an LLC.

In addition to forming your LLC, you’ll also need to choose how you will be taxed. The choice of tax designation can have a significant impact on your bottom line, so you’ll need to take time to consider all the available options.

Registered Agent

One of the first steps in the formation of an LLC is to choose a registered agent. This person or company will be the entity’s point of contact with the state to receive service of process notices, government correspondence and compliance-related documents on behalf of the business.

A registered agent must be available to accept legal and official correspondence from the state, forward documents and provide timely notifications about pending deadlines or actions that need to be taken.

You can list yourself, your lawyer or a trusted friend or relative as the registered agent. However, you must be able to be reached at the street address during normal business hours.

If you list yourself as the registered agent, but aren’t available during business hours, it can be a problem in the future if a court case needs to be served on your LLC. This could lead to late fees or penalties, so it’s best to avoid this issue at all costs.

Operating Agreement

The Operating Agreement is the internal document of a limited liability company (LLC). It doesn’t need to be filed with the state, but it can add important protections that your state registration does not.

The first section of the Operating Agreement should detail how a business is formed and who will own it. This includes how members are allocated ownership, whether they own units of ownership (each member owns one unit) and what voting rights the members have in the LLC.

A good operating agreement also describes how the owners will be taxed and how profits will be distributed among owners and members. Many states have a default rule that requires owners to divide profits equally, regardless of how much each owner invested in the business.

The operating agreement should also include provisions for how ownership can change if members sell or die. This can avoid inter-family squabbling and costly legal battles. It can also outline how the business will be dissolved in the event of a buyout or bankruptcy.


Adding or removing members of an LLC can impact your company’s financial stability. Generally, you should consult your operating agreement to define how and when adding or removing members can happen.

As a rule of thumb, you should add members only when they can help your business grow, and not just for any reason. They should bring cash, expertise, relationships or prestige to the table that can increase your company’s value.

Members have specific rights in an LLC, including the right to vote, request a business appraisal or obtain a profit share from the company. Additionally, members have the right to share in profits and losses after a liquidation or company acquisition.

Members also have the right to withdraw their ownership interest voluntarily. If a member leaves the company, you should amend your LLC operating agreement to specify the conditions under which they can withdraw their shares.