Name Reservation: It is strongly recommended to check name availability of a desired business name as soon as possible in all of the states where the company plans to be organized and qualified. Name availability may be preliminarily determined online at the Delaware secretary of state's web site. If the name you search comes up with no results, it's probably safe; although if it was reserved this search will not render such results. The best way to know if a name is available in Delawre is to ask . If you want to check the name in other jurisdictions, you may check online using LeapLaw's LLC Connection. When the name will be registered in several jurisdictions, using a service provider such as Virtual Paralegal Services is likely the most time-efficient solution.
If the name is available, reserving it may be wise if the filing will be made at some later date. You may reserve the name for 120 days for a fee of $75.00 via Virtual Paralegal Services. Reserving the name with the same service provider you plan to use for the filing will avoid later confusion.
Note: A trademark or service mark does not have to be registered to be protected. Simply using the mark in commerce gives rise to a claim.
The popular "full" trademark search provides a comprehensive search of a proposed trademark against current federal, state and common law trademarks and domain names. Full searches may be ordered from a trademark search company such as Thomson & Thomson (800) 692-8833 or Corsearch (800) 732-7241. The report provides extensive information regarding trademark availability. For more information on trademarks and service marks, see LeapLaw's Trademark Best Practice Summary.
Certificate of Formation
An LLC does not exist until a Certificate of Formation is filed with the Delaware Secretary of State. The filing fee for the certificate is $90 filing fee (add $50 for 24-hour service, $100 for same-day service and $500 for 2-hour service if required) and $30 per certified copy.
Need assistance? Virtual Paralegal Services provides paralegal services including preparation and filing services in all 50 states. For more information contact us at [email protected].
The operating agreement defines the structure of an LLC and is drafted pursuant to the provisions contained in Delaware General Laws 6 Del. C. §18-101 et seq. The flexibility permitted in drafting the operating agreement is a major benefit of the LLC structure. An LLC may use a simple format providing for control by a single managing member with a partnership tax structure; or it may have a more complex corporate-like structure with classes and series of members, a board of managers with classes and committees, complicated tax advantages and other provisions that result in a lengthy document.
Note: The provisions of the agreement governing members' contributions, allocation of gains and losses and distribution of assets must comply with applicable tax laws and regulations for the LLC to maintain "flow-through" tax treatment.
LeapLaw provides a very basic sample single member operating agreement.
An LLC operating agreement provides for the management structure of the LLC. It may provide that the company be managed by:
- A single manager or managing member who is responsible for all of the day-to-day activities of the LLC, much like the managing partner of a partnership or the sole general partner of a limited partnership.
- A board of managers or managing members, much like a board of directors of a corporation, where action is taken by majority or super-majority vote.
- A slate of officers appointed by the managers or members.
- Any combination of the above desired by the members.
The exact powers, duties and responsibilities of each position will be defined in the operating agreement. If the LLC structure is similar to a corporation, the role of managers will be similar to the role of directors of a corporation (although, unlike a corporation, an LLC may grant different numbers of votes to different individuals). If the LLC structure is similar to a limited partnership, the role of the manager may be similar to that of a general partner. The operating agreement should provide details regarding the votes needed for each type of action to be approved.
The managing members, manager or board of managers will take an initial vote upon formation in order to authorize basic business necessities such as the opening of a bank account and foreign qualifications. The initial manager vote may also fill the offices provided for in the operating agreement, if any.
Sample Initial Consent of Managers
Members; Membership Interests
The equity owners of an LLC are called members. The equity securities of LLCs are known as membership interests. Members can be individuals or business entities. Delaware law provides for single member LLCs.
Membership interests are generally expressed either in "units" or as "percentage interests" in the LLC. Please note that a percentage interest may represent an equity percentage, a voting percentage, or both, depending how it is defined in the operating agreement. Unlike shares of stock, the characteristics of membership interests are completely flexible and the membership interests of different members may combine economic ownership and voting power in different combinations as agreed to by the members.
A member of an LLC may purchase a membership interest in exchange for cash, property or services rendered. The interest comes with certain rights and restrictions as provided in the operating agreement (although certain applicable state laws may apply as a "default" if there is no operating agreement). Membership interests may or may not be evidenced by a certificate. Interest issuances and transfers may be tracked on a ledger similar to a stock ledger, or simply set forth in the operating agreement and subsequent amendments.
LLC Unit Subscription
Sample Unit Certificate
Sample LLC Ledger
Federal Identification Number
The Internal Revenue Service issues federal identification numbers (FIN) also known as an Employer Identification Number (EIN) to new corporations. To apply for an FIN, an IRS Form SS-4 (pdf) must be filed with the IRS. As of January 2, 2002, Form 2848, Power of Attorney is no longer necessary for third-party designees. Completing the the new "Third Party Designee" section on the Form SS-4 will suffice.
Tax identification numbers may be provided:
LeapLaw's Federal Identification Number Checklist provides a list of information for completing the Form SS-4. LeapLaw's Federal Identification Number Best Practice Summary provides more information regarding federal identification numbers.
For federal tax purposes, an LLC may be classified as a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), partnership or a corporation. If the LLC has only one member, it will automatically be considered to be a sole proprietorship (referred to as an entity to be disregarded as separate from its member), unless an election is made to be treated otherwise.
If the LLC has two or more members, it will automatically be considered to be a partnership unless an election is made to be treated as a corporation. If an election to classify is not made, a default classification of partnership (multi-member LLC) or sole proprietorship (single member LLC) will apply.
An election is made by using Form 8832, Entity Classification Election. If the company desires to be treated as an S Corporation, it must file a Form 8832 together with a Form 2553, Election By a Small Business Corporation. These filings should be sent via certified mail to the IRS Address in Philadelphia, PA.
Got a Double EIN? When requesting an EIN for an LLC, you may have 2 numbers assigned. This happens when a single member LLC has employees. Since the LLC isn't responsible for withholding taxes, the IRS does not cross-reference the member's social security number. Instead, they issue an additional EIN which the IRS refers to as the "sole proprietor number" for withholding purposes.
Foreign registrations must be filed in states in which the LLC will be doing business other than the state of organization, and are governed by the laws of such states. Failure to register as a foreign LLC in a state while doing business in that state will subject the LLC to possible penalties and fines. See LeapLaw's Foreign Qualification Best Practice Summary for more information on foreign qualification requirements and procedures.
State laws require that limited liability company records be maintained at the principal address of the business. The company records book should contain original copies of:
Sample Company Records Index
on creating and maintaining a company records book may be found at LeapLaw's Minute
Book Best Practice Summary.
Delaware requires that LLCs file annual reports with the Delaware Secretary of State in order for the LLC to maintain its good standing. The report is due June 1st of each year and the fee is $200. LeapLaw's 50 State Periodic Reports Chart provides a quick reference to LLC annual report requirements in all 50 states.
Identification Number |
Limited Liability Companies
Forming a Massachusetts LLC
Service Companies/Registered Agents
Trademarks and Service Marks
About Heather Jefferson, Esq. and Judy Kaiser: Judy is a veteran corporate paralegal and Heather is a former partner at The Delaware Counsel Group, LLP ("DCG"), a law firm located in Wilmington, Delaware.
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