What are Articles of Organization?
For the majority of business owners, an LLC is the ideal business structure. They are easier to form, have fewer reporting requirements, and have tax benefits similar to an S corporation. Any company envisioned as several people conducting business together as partners is best formed as an LLC.
When establishing an LLC, articles of organization are filed with the state in which it is organized in order to be officially recognized and sanctioned by that state.
What are Articles of Organization?
Articles of Organization should not be confused with operating agreements. Whereas operating agreements are agreements between partners delineating percentages, management, and abilities to sell or transfer ownership, articles of organization are a requirement for an LLC to be recognized within its state of filing and be a legal entity.
Articles of Organization is a formal document that spells out the powers, rights, liabilities, duties, and any other obligations of members of the LLC for the state. A registered agent is specified for the limited liability company, as the individual that will receive company legal documents. There will be a filing fee that can range significantly in cost per state.
Why an LLC Needs Articles of Organization
Articles of Organization are filed with the state and can be required by cities or counties in some cases.
The articles of organization act like a charter and officially form the LLC with the state, so it is effectively a legal business.
They tell others that you are indeed an existing business entity and a recognized company in good standing.
They will be necessary for other business activities, such as establishing bank accounts.
Depending on your type of business, other licensing requirements, such as sales tax or a contractor’s license, can require articles of organization.
They are even necessary to secure forms of insurance like workman’s comp and liability insurance.
The Secretary of State (SOS) will post your business information and the business standing online. It is a way to tell others that you’re legitimate and a business entity in good standing. Essentially, the Articles of Organization tell everyone you are open for business.
How to File Articles of Organization
You can file articles of incorporation online in every state. The names of principals, the registered agent, business name, and the management structure are required, so an agreement between partners is crucial. Generally, documents do not need to be notarized. The SOS will ask for a yearly update on whether the information is all the same or has changed, commonly referred to as an “annual report.”
The most general steps to filing articles of organization are:
Either walk-in or contact the Secretary of State online.
File the Articles of Organization
Pay the LLC formation fee
Receive your certificate of formation; usually in an email or physical mail, a few days or a week later
If required, publish a notice of formation
General Filing Requirements
A limited liability company filing has different requirements for each state. Some require far more information, and for a few, it might just be a page or two of information. Generally, expect the filing with the Secretary of State to be thorough.
States can have requirements as different as how LLC can come after the entity name, such as LLC vs. LLC vs. L.L.C.
Every filing will include:
- the name of the LLC
- the street address of the principal place of business for the LLC
- the name and mailing address of a registered agent (except New York)
- a signature and possibly contact information from the organizer
Some states require nothing more than the basic information and $100, whereas others want to know everything including information on each manager and member, the purpose of the LLC, the duration that the LLC will exist (either permanent or a fixed period), and the effective date of the agreement or LLC.
Many states will want to know if the LLC is a nonprofit designation, a professional limited liability company, or a traditional LLC pursuant to the state-specific designations.
Prices for filing can range from $40 up to $800 every year. Most likely, you’ll pay $100 – $150 to file your LLC.
Some states will require a small payment every year to file an annual report, whereas others just ask you to file a quick report at no charge. The majority of states will charge a small fee for using a credit card to file online. Many states offer an expedited application with online filing.
What to Do After Filing
After filing an LLC, the natural next step is to file with the IRS for an employer tax identification number (EIN). While a sole member LLC may use the owner’s tax ID number for its own purposes, any other form of LLC needs its own tax identification number for tax filings and as an identifier.
Filing is very quick on the IRS website and you’ll typically have the number in your email the same day.
If the LLC has more than one member, an operating agreement is essential to delineate everything including:
What happens if a member dies (does the LLC dissolve or continue)
Whether members are allowed to sell their ownership
If members may their percentages to their heirs
What happens if a member breaches the trust of the members
The rights and responsibilities of managers
Even in cases where partners work well together and trust one another, an operating agreement is still essential. LLC operating agreements and LLC articles of organization are commonly confused terms as they are very similar. To differentiate them, it is easiest to remember that articles of organization form and maintain the company in the eyes of the state, whereas operating agreements are terms set strictly between the members of that company.
Once your LLC is on file and you have a certificate of organization, you’re technically in business, but some applications with banks and insurance companies will require the ability to see the filing as a public record on the SOS website. It might take a few days or a week before that information is published online, but you’re a company now.