June 18th, 2021
Contents
June 18th, 2021
Rating
5 - 1 vote
If you are new to owning your own business, you may be feeling lost about all of the different legal requirements you need to meet. If you've never worked in a small business, or never been exposed to the information you might need to open your own business, it can be challenging to figure out what's what.
Usually, opening a business is a passion project for most people, at first. However, if you plan to hire employees, or grow your offerings, or just turn into a bigger business over time, you'll need to be sure you have all your legal ducks in a row.
Here, we'll talk about a very common document for many small business owners: Articles of Organization for an LLC. We'll go over everything you need to know about this extremely important document, including how to draft one yourself and what you need to do with the document after it is drafted. We'll also talk about an additional important document you might want to consider, as well as a few other things you need to know about your potential new business.
By the end of this guide, you'll have a strong understanding of how to get your LLC up and running.
Before we get started, please be advised that nothing in this guide is meant to constitute legal advice, and it should instead be taken as informational only.
We can't talk about Articles of Organization for an LLC unless we talk about, well, the LLC! So, what exactly is an LLC? LLC stands for "Limited Liability Company." This is usually the preferred form of business for most solo entrepreneurs and small- to medium-sized businesses. The reason that many people prefer the LLC is because of its primary benefit feature: limited liability. As the name implies, when you create an LLC, your own personal liability is limited for the activities of the business.
In other words, if you formed an LLC for your fitness business, and someone got hurt while at your business, they might decide to go after you in court. If they did, your liability would be limited to the assets of the business; i.e., the profits that the business made or the value of the building, etc. Conversely, if you didn't form an LLC for your fitness business and choose to operate without a formal business structure, your liability could go as far as all of your personal assets, including your personal income, your home, etc.
An LLC also has other benefits, such as the avoidance of double taxation, which means that your personal taxes and the LLC's taxes won't be taken separately: you can have the LLC's taxes "flow through" to your income and just get taxed once. For more information, check out our guide "How to Form an LLC."
Now that we know just what an LLC is, let's discuss what Articles of Organization are.
Final takeaway: An LLC, or Limited Liability Company, is the preferred business structure for many small- to medium-sized businesses because of its limitation on liability, as well as easy tax structure.
As the name implies, Articles of Organization are the document that organizes the structure and basic information of the LLC. "Articles" in this case doesn't mean a series of articles like you might read on the internet. Instead, it means short contractual clauses that are listed one after another in a single document.
In other words, the Articles of Organization are really just a short contract, outlining important information about the business you are about to form.
Final takeaway: Articles of Organization are the basic formation document for an LLC.
Articles of Organization for an LLC will most often contain the following provisions, across all the different states:
Although most contain the above-mentioned similarities, Articles of Organization are different in each state. Therefore, some states may have more specific requirements than others. For example, in addition to the above, Articles of Organization in certain states may also contain:
The Articles of Organization don't usually cover specifics of how the LLC will be governed. They simply provide basic information about the LLC's formation and structure.
Final takeaway: Articles of Organization cover identifying and structural information about the LLC.
Although you might think Articles of Organization are just a helpful document for you, as a business owner, to draft important information about the LLC, the truth is that the document is used for a more important purpose: filing with the state.
All states require new LLCs to file their Articles of Organization, usually with a filing fee. This is how the state knows that you plan to do business there. In some states, the document is called something else, like a Certification of Formation, but the idea of what it contains and what it is used for is the same.
The Articles of Organization will usually be filed publicly so that anyone can go and search your business to see what is in your Articles. This is why most LLCs use only information that they would feel comfortable being public (for example, no home addresses).
Final takeaway: When the document is complete, your Articles of Organization should be filed with the state where you plan to do business.
The Articles of Organization, though extremely important, isn't the only document that is needed in the life of your LLC. You should also have an Operating Agreement.
Although an Operating Agreement generally doesn't get filed with the state, some states require you to have one. An Operating Agreement is much more detailed than Articles of Organization. Although they may overlap a bit on some relevant information (such as the name, purpose, structure, etc.), the Operating Agreement describes how the governing decisions for the LLC are made and how the members or managers relate to each other.
While the Articles of Organization are required for your state, the Operating Agreement is a must-have for any business that wants to grow and stay organized as it continues to operate in the most efficient manner. For more details on the differences between these two documents, check our guide "What is the Difference Between Articles of Organization for an LLC and an LLC Operating Agreement?"
Final takeaway: Along with Articles of Organization, you should also have a well-drafted Operating Agreement.
While having the Articles of Organization and Operating Agreement drafted are a really good start, you should also consider the other things you may need to get your business up and running. These would include obtaining a federal tax ID number from the IRS, starting a business bank account, and make sure that any other licenses you need for your particular business model are good to go. For example, if you plan to start a bar, you'll need to make sure you have the requisite alcohol licenses.
It's always a good idea at this stage to touch base with a licensed attorney in your state to go over your plans. They can help ensure that you have everything you need legally to get going.
Final takeaway: Make time to chat with a licensed attorney that specializes in business law in your state. They can explain anything you might need help with, and give you peace of mind that you are operating legally.
Articles of Organization are a really important document in the life of any LLC. In fact, the Articles of Organization birth your LLC! No matter the state, a new business can't form as an LLC without a well-drafted Articles of Organization.
As mentioned above, the Articles contain all of the most important information about the formation of your new business, including identifying details about the relevant parties, like registered agents, members and/or managers. They alert your state to the fact that you plan to do business there.
Again, though, while the Articles are extremely critical, they aren't the only thing you should be considering when you start a new business. You should ensure that you also have a strong Operating Agreement, and you should check any other legal requirements your business might have. Getting a tax ID number and opening a separate bank account are always recommended.
Finally, it's a good idea to chat with an attorney licensed in your state for any additional questions you might have.
Other than that, cheers to your new business!
About the Author: Anjali Nowakowski is a Legal Templates Programmer at Wonder.Legal and is based in the U.S.A.