Limited Liability Company Setup

After getting a physical address for my as of this time purely online business, I could now complete the paperwork to setup my own Limited Liability Company. (See previous articles for why I chose to do this) There were several options for completing the paperwork and filing which I will briefly talk about. I am also mainly going to go write about the option I ended up choosing in order to accomplish the filing, and possible mistakes I may have made along the way.

Options for Filing the LLC Paperwork

  1. Do It Yourself
  2. Hire an Attorney and/or CPA
  3. Use a non-attorney legal documentation service

Do It Yourself

The first option for filing my LLC paperwork was to request the paperwork from my state, Texas, fill out the forms myself, and send it to the Secretary of State office for filing. Now I had read several articles on this with some people saying it was painful while others stated that it was not that hard to do. I guess it just depends on how much you like to do yourself. I often like to figure things out and over-research things before I do them (often spending more time on the research than the actual doing part which is a problem I have!) I decided from the start with my businesses that I didn’t want to get caught in that trap I set for myself often. On the other hand, I also don’t want to shell out more money than I think I need to if I don’t have to. I’m sure with proper research and time I could have completed the paperwork accurately and saved money in the final cost of filing. But since I did not have unlimited time or an unlimited ambition to tackle this, I chose not to follow this path.

Hire an Attorney and/or CPA

This of course would have been the most expensive option and I’m not sure it would have saved me anymore time or headache over the third option listed. First you would have to pick an attorney that had experience in setting up an LLC (from what I had learned, this can vary more than you think.) Also just like anything that you want to outsource, such as car repair, plumbing services, lawncare, etc., unless you have used their services before you really do not know how good it is until you use them. With attorney’s and CPA’s fees, this can be an expensive process. I personally do not have much experience selecting these professional services because I have not used them much in the past. So I would either have to research and find recommendations for these professional services, taking time and effort, or just hope that the ones I did contact would do a good job.

Use a Non-Attorney Legal Documentation Service

This option is much like taking your tax papers to tax preparation services like H&R block or the like. With this option you get some guidance with paperwork preparation and filing assistance, but they do not offer you legal advice which you may or may not require. These services are setup to be user friendly with answers to many frequently asked questions listed for reference. Think of Turbo Tax Online as a comparison except these are for legal documents. I ended up picking this type of service over doing it myself completely or hiring an attorney and/or CPA.

There are varieties of companies that provide these services and I did check out a few. I have to admit, I ended up choosing LegalZoom.com out of recommendations from others online that had used them, and also because of brand recognition. Hey I guess marketing does work. As a note of disclaimer, after I used their service and was happy with the results (keep on reading) I signed up for an affiliate account with them. I’m not asking anyone to use a particular service, that is up to you, and there are many out there which may be just as good or better.

How the Process Went

I will not give the actual step-by-step, line-by-line process because I believe most of it is self-explanatory to those who use their service, and there is no reason to duplicate their entire process just to bloviate and have more to write than I think is needed. Also there are many different choices to be made which are based on each individual business’s circumstances, and for me to lay out my specifics would not necessarily be of any benefit to others. I have to say, though, that I felt there was adequate information given to guide me through the procedure. The only point in the process where I think I should have done more research prior to starting the paperwork related to deciding how you want your LLC to be taxed. In simple terms, you can choose to be taxed either as a corporation or as an individual in terms of how profits are regarded. I believe this is an area where you might need to get more background information regarding the pros and cons of the route you choose prior to starting the paperwork process, and make sure you know why you are choosing the method of taxation you end up selecting.

Legal Zoom had three different packages for filing your LLC paperwork. They had the Economy, Standard, and Express Gold. The prices listed do not include the costs of the actual state filing fee which is charged by the state where you form your LLC. This varies from state to state so it is helpful to know what your state charges beforehand so you will not have sticker shock when it comes to the total cost. I will breakdown my costs a little later in this post.

  • The Economy package ($149.00) or basic package included a preliminary clearance of your LLC’s name, the filing of Articles of Organization, a custom operating agreement including provisions protecting officers and managers from liability, and their “Peace of Mind Review.”
  • The Standard Package ($249.00) included everything in the Economy package plus extras such as a Deluxe LLC Kit embossed with your company name, an official company seal, and 20 customized membership certificates with transfer ledger.
  • The Express Gold package ($359.00) included everything in the Standard package plus Priority Rush service (7-10 business days), over 40 essential business forms on CD-ROM, including employment and independent contractor agreements, Federal Tax ID (EIN) application preparation, and two-day FedEx delivery of final package

The price differences between the packages were mainly related to add-ons which had nothing to do with the actual filing process. I chose the Economy package because I was only interested getting the filing performed with just the necessary paperwork and services required to do this. At the end you can choose additional add-ons if needed as well. I added the filing for my business employer identification number (EIN) so that it would be provided at the same time my LLC paperwork was completed. I have read that obtaining your EIN through the IRS is a really painless, fast, and easy process online, so you may decide not to have it as an add-on expense if you use a filing service.

There was one hidden fee, or at least not clearly spelled out fee, I encountered during the process. It was a fee related to selecting a Registered Agent for your LLC. “Each LLC must have a registered agent. This is the person designated to accept official notice if the LLC is “served” with a lawsuit. A registered agent must be either (1) an adult living in the state of formation with a street address (P.O. boxes are not acceptable) or (2) a company registered with the Secretary of State in the state of formation.” (Legalzoom.com, 2010) Now there are advantages in selecting a registered agent other than yourself which are listed in the information on their website, such as adding a layer of privacy among others, but what did not seem to be clearly discussed was the fee of $149.00 a year for having your registered agent through LegalZoom’s registered agent service. This is something I will look into more during the year to see if I want to change my registered agent to avoid this recurring fee.

My Order Summary

Package:

Economy LLC $149.00

Two-Day Delivery (Two Business Days) $14.95

LLC Filing Fee – TX $300.00

EIN Obtainment $79.00

250 Premium Business Cards $19.99

Non-Customized Membership Certificates (10) Included

Filed Articles of Organization Included

Operating Agreement Included

Registered Agent Services $149.00

Business Registration $49.00

Grand Total: $760.94

As you can see, the total cost is much more than the first impression you get when you see $149.00 initially. I knew there would be state filing fees which is a good chunk of change by itself for my state, so this did not surprise me. I added the business card add-on which also gave me a free coupon for a total of 500 business cards and free shipping. I also had the EIN obtainment add-on which I had mentioned previously. So I could have shaved $100.00 off the order total and also the Registered Agent Services if I had chosen to do so.

How Long Did it Take Using the Economy Package?

Below is the time table from the order status on my account at LegalZoom.com

Steps to Completion

Status – My order was placed on 3-10-2010 around 8:00 pm

· LLC name is preliminarily available – Completed 03/11/2010 12:01 PM

· Sent to Texas Secretary of State for filing – Completed 03/12/2010 11:34 AM

· Texas has approved your filing – Completed 03/15/2010 03:41 PM

· Preparing your final documents – Completed 03/18/2010 11:23 AM

· Preparing your order for shipment – Completed 03/18/2010 05:43 PM

· Final quality check – Completed 03/19/2010 02:21 PM

I received all my paperwork in the mail at my business address two days later. Since I had not purchased the expedited services and only the Economy package, I was pretty impressed with the overall turn-around time from start to finish being 11 days. I received all the required paperwork and documentation for the LLC including the official LLC registration certificate from my state’s secretary of state office along with my business Employee Identification Number. I now had everything I needed to open up a business bank account in the name of my new Limited Liability Company. This is the next step I will write about in an up-coming article.

Conclusion

I was very happy having used a legal documentation service, in my case LegalZoom.com, as opposed to filing the paperwork myself or using an attorney for the project. The process was straightforward and very easy to complete. I think it took me about 30-45 minutes to go through the steps of questions during their online interview procedure. The costs were a little more than I had expected, but overall I think it was a good value. I wish I would have explored a little more in-depth the taxing designation I chose for my LLC because I have learned more about this since I setup my LLC. I also probably would have applied for my own EIN on the IRS website rather than paying for this service if I have to do it again. Everything is a learning process and I hope this post may help readers understand a little better the process I went through in getting my LLC paperwork completed. I would love to hear any comments you have on the subject and even advice from you if you have gone through this process differently.

Colorado Limited Liability Company – Two Important Points About Its Liability Protection

The Colorado Limited Liability Company is a legal entity that you can form in Colorado to operate a small business.

The only reason it exists is because Colorado lawmakers enacted a law back in 1990 called the Colorado LLC Act.

There are two major issues that every Colorado LLC owner should be aware of to ensure that the personal liability protection is preserved.

ONE: IT MUST BE EVIDENCE THAT THE COLORADO LEGAL ENTITY IS OPERATING THE BUSINESS

In Colorado, there have been court cases where a member was held personally liable for a business obligation despite having a properly formed Colorado LLC in good standing with the state.

The reason for this is because when working on behalf of the business, he did not make clear to the parties he was doing business with that it was the Colorado legal entity that was the business party.

So, there is a risk in Colorado that by not properly disclosing that the business party is an LLC, you run the risk of being found personally liable. This is very important to know because often in the business of growing a business, you may not focus on this requirement.

Always ensure that you disclose and make clear to any third party, whether it be a customer, partner, supplier or service professional, that you are doing business as an agent of an underlying Colorado business entity and not personally as a sole proprietor.

TWO: PROPER COLORADO LIMITED LIABILITY COMPANY FORMATION

The only reason that owners of a Colorado LLC business have limited liability protection is because the Colorado laws include a specific provision which grants this protect. This provision can be found in Section 7-80-75 of the Act.

However, in order for that Colorado law provision to apply, there must first be a valid legal business entity formed in the state.

Accordingly, it is important that you strictly comply with the Colorado LLC legal requirements when submitting a formation filing for your legal entity. These requirements can be found in Section 7-80-204 of the Colorado laws.

What is a Limited Liability Company and is it Right For Your Business?

What is an LLC? What’s a limited liability company? Many aspiring business owners tend to ask this question a lot. A limited liability company (or LLC) is one of the options they hear about when they look up resources on how to start their own business. It might even be something that friends might mention to them, although not everybody knows what it is and how to set it up.

First of all, it is not a corporation. This is a common misconception that people have. Whenever you hear someone say a “limited liability corporation”, be cautious about the advice they are giving you. The words “company” and “corporation” mean different things legally. They are not interchangeable terms.

Now that you know what a limited liability isn’t, let’s explore what it is. The phrase is a clue in itself. Basically, a limited liability company is a business entity that provides “limited liability” to its owners. In other words, the people who own the company are not personally liable for any debts, payments, or legal trouble that the company runs into. For example, if the company owes a contractor, the contractor can’t demand that the LLC owner pay with his personal funds. This is because an LLC creates a firm, legal separation between the company assets and the personal assets of its owners. It’s primarily this reason that makes an LLC one of the most popular choices among new business owners.

But this doesn’t mean that your personal assets are always immune. There are some cases, especially when it comes to fraud or misrepresentation, that a court may order an LLC owner to be legally liable for any mistakes made by the LLC.

Even if an LLC protects you in the same way a corporation does, it is much easier to file an LLC. Also, taxes are much more affordable since you only get taxed for the same income once. If a client pays your LLC, you only have to pay taxes on that payment once – via the LLC. You don’t need to pay additional taxes when you transfer the profits to your personal accounts. In a way, you’re getting the best of both worlds – you get to have limited liability but without the hassle and expense of filing for a corporation.

To set up your LLC, you need to look at your state’s specific rules and requirements. They usually ask you to submit Articles of Organization, which contains the names of the members of your LLC, as well as the description of the business. You will also need to pay a small fee.

Limited Liability Company Formation

A Limited Liability Company, commonly referred to as a LLC, is a company that combines the features of a corporation and partnership type business structure. The owners are referred to as members. The main documents that are required to be drafted are the Articles of Organization and the Operating Agreement. The survival of LLCs start by filing the Articles of the Organization with the Secretary of State and the articles have to be in the prescribed format. A state-filing fee needs to be paid. The necessary information that has to be provided includes the date at which the LLC is to dissolve and a declaration as to whether the LLCs will be managed by one manager, more than one manager or by all the owners. Articles may be prepared by lawyers or filed by individuals or the groups interested in forming LLCs.

The formation of the LLC is legally complete when members enter into an Operating Agreement. Though in many states, it is not necessary to draft an operating agreement, it is advisable. Every LLC member’s distributive share of profits and loss is specified in the LLC operating agreement. This Operating Agreement may come into being prior to or after filing the Articles of Organization and may be in writing or oral. Each state has different rules regarding the formation of LLC s. Some states demand a publication notice with a local newspaper. Similar to corporate by-laws or partnership agreements, the operating agreement helps to define the company’s profit sharing, ownership, responsibilities and ownership changes. The LLC Operating Agreement may range from 12 to 16 pages. It contains information regarding the company’s name, address, registered agent information, name and address of each LLC member, date of company dissolution, appointment of LLC officers, accounting method and LLC management structure and operation.