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When forming the limited liability company (LLC) or corporation, each business entity must be created by filing articles of organization with the state in which the owner has decided to form the business. The business owner is free to form the entity in any state, and not merely in the state in which he will be doing business. Delaware and, to a lesser extent, Nevada have emerged as popular sites for business formation.
When forming an LLC, a formal document known as the articles of organization must be filed with the state. In the case of the corporation, the articles of organization are usually termed "articles of incorporation."
When a corporation (as opposed to an LLC) is being formed, a statutory close corporation usually will be a better choice than a conventional corporation. The statutory close corporation must be formed by way of specialized articles of organization. These specialized articles specifically use the language required by the particular state's close corporation statute. Not all states permit the formation of a statutory close corporation.
The entity legally comes into existence when the articles are accepted by the state. Thus, it is important to be able to prove, if necessary, that the articles were filed. The state will return a stamped copy of the articles. The stamp will note the effective date of the formation of the entity. For an additional fee, the state will return a certified copy of the articles.
A Records Kit can be purchased with pre-printed ownership certificates. One copy of the stamped (or certified) articles should be kept in the entity's Records Kit. Another copy of the articles should be kept in a separate secure location.
The entity should issue ownership certificates to the owners and record the issuance, including the consideration received in return, in its Records Kit and its accounting records.
Standard forms for the articles of organization (for an LLC, statutory close corporation or conventional corporation) are available from each state. The business owner can fill in the necessary information on the form.
Ideally, however, the articles of organization for an LLC or a corporation will be tailored to the business owner's specific requirements. No two situations are identical.
- name, principal location and purpose of the business
- agent for service of process
- classes of ownership interests
- initial managers and owners