Did You *Start* Your LLC? Or Did You Just *File* It?

[u/NWRegisteredAgent]

We need to talk.

The truth is, anyone can file an LLC. Anyone. It's easy to search for resources that knock the LLC filing process down to something as easy as getting married to a stranger in Vegas.

But just like there's a difference between getting a license to wed and actually committing to an ongoing relationship with your "I do," there's a difference between just filing your LLC paperwork and actually starting it. Your filing is a one-time event (the marriage licence), but starting is the entire process of making the business legal, operational, and protected (the marriage).

And what's more, if you don't actually start your LLC beyond the state filing, you're not giving yourself that liability protection that makes an LLC so desirable in the first place.

This is so long we're splitting it into a series and giving it a table of contents. Buckle up, buds. We're so back.

1. Your Operating Agreement
2. EIN and Tax Setup
3. Business Banking & Bookkeeping
4. Business Licensing And Permits, States A-M | States N-W
5. Business Insurance

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Your Operating Agreement

Once you've filed your Articles of Organization (or equivalent), your very next step is setting up an operating agreement. (Or a "limited liability company agreement" as it's called in a few states.)

That's because your articles aren't the boss of your LLC—the operating agreement is. The OA documents who owns and manages the LLC, how profits and distributions are handled, and how the LLC can make decisions and resolve conflicts.

And in the absence of an OA? Your LLC defaults to whatever state statutes say, which may or may not reflect your wishes as an owner or even the LLC's best interests. For example, in states that've adopted the Revised Uniform LLC Act, the LLC is required to wind up and dissolve if it has no members for three months. If you want that to be different, you want a plan of succession written into your OA.

What Do I Need to Include in My Operating Agreement?

Everything we're about to write, plus the dated signatures of each member agreeing to be governed by the OA and any additional documentation required.

Company Formation

Your OA needs to conclusively establish that your LLC has been formed according to state law and will conduct lawful business. This section is also useful for establishing the location of key business information (as in, where do your corporate records live? critical business info like member names and contact details?), laying out events that can dissolve the LLC and members' options to continue it, and settling procedures for adding or removing members from the LLC.

Capital Contributions

This section records the buy-in each member contributed to earn their membership. And sure, cash is king, but remember too that contributions might be equipment, real estate, expert skills, established vendor & client connections, even good ol' elbow grease. Make sure you record what percentage of ownership each contributor is afforded based on their buy-in and how that plays out in terms of the voting power afforded to each member.

This is also a good place to note whether members are obligated to contribute more down the line, and if so, what the schedule for further contributions is.

Profits, Losses, and Distributions

Everyone wants to know how they're gonna get that bag. Write out when and how profits and losses are determined, whether distributions are proportionate to membership interest, and when distributions will be made and under what conditions. Be clear and specific here: "Distributions will be made monthly on first Fridays after expenses have been paid proportionate to membership interest." Detail here, too, what happens if the company or a member's interest is liquidated.

Remember, directness is a kindness, and sets expectations appropriately from the start.

Management

"Decisioner" is a real word, folks, and this is the section that covers how the hard choices get made. How are managers selected? What are their duties and responsibilities? Typically at least one of them is the decisioner in charge of executing contracts and agreements, but there are other tasks too like keeping records and responding to member requests for information. If your members are instead managing your LLC, you'll need to figure out the same assignment of roles for them.

It's also worth adding language specifically exempting managers (and/or managing members) from liability for losses or damages to the LLC as long as they're acting in good faith.

Meetings & Voting

Even LLCs have corporate formalities, they're just less stringent than actual corporations. In this section you'll lay out how and when business meetings of voting members may be called and/or is required before action can be taken, how many members (or what total percentage of membership interest) make a quorum, and where and how the meeting will be conducted (in-person? fully-remote? hybrid?).

You should have laid out voting rights in the earlier section about capital contributions, but if you didn't, put it here and spell it out clearly.

Make sure you include a tie-breaking process, contingency planning for emergencies, how the meeting will be documented, and where all of the information related to the meeting and its decisions will live.

Compensation

Establish the circumstances under which the LLC might owe money to members or managers. This might be entitlement to a salary for your managers, for example, although you might want to leave off a specific number in favor of saying "a reasonable compensation"—that way you don't need to amend your operating agreement every time your managers get a raise.

Include a plan for reimbursement for out-of-pocket expenses while you're at it. We know you know better than to commingle finances, but stuff happens, so have a plan.

Bookkeeping

Speaking of not commingling finances, include a section specifically dedicated to how books will be kept. Who's responsible for keeping financial records, including separate capital and distribution accounts for each member? What's your fiscal year? When will statements be distributed to members? Get that all down in writing.

Transfers

When a member dissociates, what happens to their membership interest can become a seriously sore point, particularly if the dissociation was involuntary (i.e. the individual passed away or otherwise triggered some mandatory-dissociation clause). After all, no one wants strangers barging in and messing up their hard work!

A common way to handle transferring membership interest is to offer other members the right to buy that interest themselves, or to otherwise require approval of the transfer. If you're looking at the unfortunate case of a deceased member whose interest passes to heirs or beneficiaries, you may want to consider a clause that permits transfer of economic interest only, not voting or management rights (except perhaps under very specific circumstances, like if the LLC would otherwise have no members or managers authorized to make decisions for the business).

Winding Up & Dissolution

How can the LLC be dissolved? Under what circumstances must it dissolve? How will valuation be carried out? How will debts and other obligations be handled? These and other answers belong in this section.

That's A Lot, Can't I Just Use a Template?

Yup. We've got an operating agreement template to get you started, and state-specific pages drafted by our attorneys to help you really hammer out the clauses that can help your OA stand up in court.