Filing a Certificate of Formation (or analogous document) is typically fairly straightforward, however, there are a few important issues that need to be considered, including (a) name availability, (b) the registered agent, (c) choice of type of governing authority, and (d) inclusion of any special provisions.
First, you need to select a name that is available for use in the state you chose to incorporate in. You can typically check name availability online, using the name search function on the website of the Secretary of State for the state you are incorporating in. However, it is important to note that even if the Secretary of State allows you to file using a certain name, if that name is too similar (usually using a potential for confusion type standard), another company can sometimes prevent such use. It is important to carefully consider your business name, to ensure that you follow all rules and regulations involved with name availability.
Second, you need to determine who will serve as the registered agent – this will be the person or entity in the state of incorporation that will accept service of process (i.e., lawsuits) on behalf of the LLC. This can be anybody residing within that state. Typically there are some basic requirements, such as the registered agent being at least 18 years old, however, most residents should qualify. If you’re LLC is incorporated in a state where none of its owners reside, you can use a commercial registered agent service instead, which typically costs between $50 and $100 per year.
Third, you need to determine whether the governing authority of the LLC should be member-managed or manager-managed. A manager-managed LLC uses one or more managers, who may be different than the members, and depending on how you set things up, can roughly mirror a corporation’s board of directors. In contrast, a member-managed LLC uses its members to directly serve as the governing authority – this option is typically better for LLCs with few members. To properly prepare a Certificate of Formation, you must clearly understand the differences and nuances involved in selecting the appropriate governing authority.
Fourth, in certain cases, the specific circumstances, goals and requirements of your LLC, may necessitate the inclusion of special provisions on the Certificate of Formation. For example, if you want certain provisions relating to expanding or limiting indemnification obligations, it is often prudent to include such special provisions directly in the Certificate of Formation. If these types of provisions are to be included directly on the Certificate of Formation, please take great care in doing so, as it can be more difficult to amend the Certificate of Formation at a later date.