Think Twice Before Forming an LLC or Corporation Online

Just about anyone can form an LLC or Corporation by filing a simple online form with your SOS. Here’s an explainer, plus a cautionary note.

When you want to form a business entity to protect your personal assets, you’ll most likely create either a LLC or a Corporation. The formation process is really easy, but you don’t want to screw it up.

(You can read more about limited liability here.)

Formation Filings

In most states, including both Missouri and Kansas, you can form a LLC or Corporation online. Kansas charges $85 for corporations and $160 for LLCs. Missouri charges $58 for corporations (although that number can increase based on the value of your authorized capital) and $50 for LLCs.

The name of the filing changes from state to state, but in most cases the formation document for a corporation is called “Articles of Incorporation” and the formation document for a LLC is called “Articles of Organization” or something similar.

When filing online, you must enter your business name (which can’t be identical to another entity in the same state) and designate a registered agent (in short, where official mail is sent, including lawsuit filings). If you are an LLC, many states will ask whether you are “Member-Managed” or “Manager-Managed.” If you are a Corporation, most states will ask for information about your Board of Directors and Officers, and most states will also require information about your capital structure (number of shares, etc.).

And that’s really about it. After you pay the fee, you have a business entity.

The “Cautionary Note”

Although that process is simple, you should be very careful about making those filings on your own.

For example, if you want to limit the power of LLC owners to act on behalf of the company, you may want to consider selecting “Manager-Managed.” For another example, if you create a corporation, the “default” articles provided by the state may omit important provisions regarding limitations on liability and indemnification.

And in both cases, the state won’t provide you with very important (but private) documents such as Bylaws for Corporations, Operating Agreements for LLCs, Buy-Sell Agreements, Member/Shareholder Resolutions, and more.

In short, when you skip the important “back end” legal services, you’ll end up with a shell of a company. That shell won’t be sufficient for building a successful business and at some point down the road it will come back to bite you.

Most of the blog posts on this site don’t end with such a “cautionary note,” but the simple reality is that when forming a business you really should work with an experienced business lawyer. If you need help, you can always contact us.

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Image: Adobe/barsrsind
*This article is very general in nature and does not constitute legal advice.

By | 2017-04-24T16:01:54+00:00 April 24th, 2017|Freelancers, Small Business, Startups|