What is a Certificate of Formation?
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Ever heard the word Certificate of Formation or Organization, and wondered what it is? If you are considering starting a business, you should stick around for this interesting topic.
Running a limited liability company (LLC) may be an excellent idea for you, and here's why. You will not have to deal with the complexities of managing a corporation. And the business would be better protected than a sole proprietorship.
But of course, you'll need a certificate of formation to form an LLC. What is a certificate of formation? Read on as we dive deep into it.
What Is a Certificate of Formation for an LLC?
A certificate of formation is a legal document that officially establishes an LLC. It is proof that a business exists and it holds all the vital information about the LLC.
Now, you should know that a certificate of formation exists in every US state. However, the requirement for creating a limited liability company via a certificate of formation differs.
Some US states refer to it under a different name title. For instance, Idaho, Massachusetts, Connecticut, Iowa, Utah, and Pennsylvania refer to a certificate of formation as a certificate of organization.
But when you go to the business section of states like New Hampshire, Delaware, Mississippi, Alabama, New Jersey, Washington, Maine, and Texas, you'll hear this document referred to as a certificate of formation.
LLC as a business structure was designed to protect these business owners from the tax that business corporations pay. So, while LLCs are not sole proprietorships, their taxes are not as much as corporations.
Since LLCs became a thing in the1980s, requirements were made for anyone (or group of friends) that wanted to create an LLC. The requirement differs from one state to another. All states created their unique requirement for creating an LLC under state law.
Although the procedure for creating an LLC differs from state to state depending on state law, they all require that intending LLCs create a certificate of formation or organization.
Two people can sign the certificate of formation. They are the CEO/Business owner and an authorized representative. It could either be an accountant or an attorney.
Generally, filing a certificate of formation must be done with the Secretary of state in the state where you intend to establish your business. However, since the world has become digital, you may not need to fill out the certificate of formation document with the secretary of state.
Some states grant you the liberty to fill out the document online. But, you'll have to pay the filing fee online. The other option is to print it out, fill it out, and send it to the secretary of state's office.
What Are the Details in a Certificate of Formation?
Now that you know what a certificate of formation is, here is the information the document would request from you.
- LLC name and the date the company began operations.
- LLC's office/ registered office.
- Purpose of the business: Some states use a different title to refer to the business purpose in the document. For instance, Massachusetts uses the term "general character" instead of "business purpose.
- Business duration.
- When the filing becomes effective.
- Address and name of registered agent: The registered agent is an individual that your company has elected to collect legal documents on behalf of the LLC. It could be an entity. Some states prohibit LLCs from receiving legal documents by themselves. A good example is Connecticut. Also, you'll need a registered agent to handle that task.
- Address and name of one of the governors or managers of the business
- Address and name of the organizers
- Copy of the certificate of name registration of the LLC.
- Authorized representative's signature
LLC Name Requirement: Rules for Naming
Choosing the name for your LLC is much of a big deal as starting the LLC itself. Almost any individual or company your LLC has business dealings with would call it by the name you assign to it.
While you can change the name of your LLC at a later date in the future, it's better to get it right from the formation process. You risk losing the LLC's identity from a name change.
Aside from thinking up a ideal name to represent your LLC, you must also ensure it meets the state's standards. Every state has its rules for naming your LLC, so you also have to consider these rules.
Adhering to these rules when creating a name for your LLC ensures that your certificate of formation gets quickly approved.
Here are some of the rules of LLC naming.
- The LLC name must not refer to or wrongly suggest any relation to state or federal government entities or bodies like the FBI, Treasurer, and FDA, amongst others.
- The name must not include identifiers that claim what the business is not. For instance, your business name cannot include words like "Corporate" or "LLC" if it is not a corporate firm or an LLC.
- The name should suggest no illegal dealings or activities.
- The name must not mimic or share similarities to an already registered business. It must also not be an infringement on any trademark.
- There is no discriminatory, obscene, or abusive-promoting language.
- No use of words or symbols associated with the International Olympics Committee (IOC).
- It must not suggest a government unit like a Borough, Village, or City.
- Without the appropriate licensing, you cannot use the words Doctor, Engineer, or other professional name that requires licensing.
On that note, there are some other factors you should consider before you name your LLC.
For starters, play within the borders of words you know people would easily remember. That's the first approach to setting your business up for success. The reason is that people would easily connect your services to the business name.
Another thing is to keep your LLC's name as short as possible. That also ensures that it sticks to memory.
When you finally get that idea for your business name, check if it's available. That is, ensure another company isn't already using it. An excellent way to do this is to search the US patent and trademark office database. Doing a domain search also comes in handy.
When you finally get your LLC's naming right, you could consider getting a trademark protection.
Standard LLC Incorporation Package by the USA Corporate Service Inc.
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Other Requirements for Business Formation
Aside from the certificate of formation, you'll need a few other requirements to start operating your LLC fully. Here are a few.
Electing Your Board of Directors
Your business is not going to run itself. You'll need board of directors to make meaningful decisions for the business efficiently. That way, the business would grow.
The board does not necessarily have to consist of all the shareholders. But the shareholders need to meet to decide who they want on the board.
The company needs to have bye-laws to govern its affairs and protect its values. The bye-laws dictate and govern the daily operations of the business.
Have a Corporate Record Book
This would hold all the company records, from the certificate of formation to other important documents. This record book should be stored in a physical location within the company.
You could also scan all company documents and save them in the cloud if the physical documents are missing.
FAQs: What Is a Certificate of Formation?:
What States Require an LLC Certificate of Formation?
The states that require an LLC certificate of formation include; Idaho, New Jersey, Delaware, Texas, and Pennsylvania.
How Much Does a Certificate of Formation Cost in Texas?
In Texas, filing a certificate of formation would cost you $300 and a 2.7% convenience fee mandated by the state. If you like to reserve your company's name before you're ready to file a certificate of formation, you'll have to pay a $40 name reservation fee.
Is Certificate of Formation the Same as Articles?
Yes, a Certificate of formation is the same as articles of incorporation.
How Do You Know if Your LLC Was Approved in Texas?
The Secretary of state in Texas would email you specific details to inform you of the approval of your LLC. In the email, you will find your stamped and approved certificate of formation, a welcome letter, and a certificate of filing. Usually, it takes 2-3 business days to get a response after applying for it.
What Are Formation Documents?
Formation documents refer to a couple of things. It refers to articles of incorporation, certificate of formation, certificate of registration, certificate of formation, certificate of incorporation, certificate of partnership, and other documents that legally establishes the presence or existence of a person or business.
Conclusion: What Is a Certificate of Formation?
Seeing that we carefully fed your curiosity on the question "what is a certificate of formation?" you can proceed to create one for your business if needed.
Without a certificate of formation (also know as a certificate of organization), your LLC does not exist. This vital document is legal proof of an LLC's existence.
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" What is a Certificate of Formation?". Legal Explanations. Accessed on September 21, 2022. https://legal-explanations.com/blog/what-is-a-certificate-of-formation/.
" What is a Certificate of Formation?". Legal Explanations, https://legal-explanations.com/blog/what-is-a-certificate-of-formation/. Accessed 21 September, 2022
What is a Certificate of Formation?. Legal Explanations. Retrieved from https://legal-explanations.com/blog/what-is-a-certificate-of-formation/.