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The term of an LLC refers to the length of time during which the LLC intends to exist. It's a necessary legal specification when drafting your business's operating agreement or articles of organization.
By default, most states assume an LLC's term to be "at-will" or "perpetual," meaning it'll continue to exist indefinitely unless the members decide to dissolve it. However, some business owners may choose a specific duration for their LLC, especially when embarking upon a time-sensitive project or joint venture.
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Example Imagine you and a friend decide to form an LLC to launch a pop-up restaurant venture for the summer. In this case, you'll likely choose a fixed term for your LLC, since the project is temporary. Then, upon completing the endeavor, you'd have the option to dissolve the LLC. |
Understanding and defining the term of your LLC is essential for smooth operations and legal compliance with state laws.
Duration of LLC Term
Every state has its unique rules and norms regarding LLC terms. While some may allow for an indefinite term, others could impose restrictions or have specific regulations.
Before deciding your LLC's term, research your state's requirements to avoid future complications. Your state's Secretary of State website is an excellent resource for information about the rules governing your jurisdiction.
Impacts and Consequences
The term of your LLC carries legal and practical consequences that may affect your company's operations:
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Dissolution: If your LLC has a fixed term, members can choose to dissolve the LLC when the term expires. The LLC will need to wind up its operations, settle debts, and distribute remaining assets among the members.
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Extension and Renewal: If the term expires but the members wish to continue, some states allow renewing or extending the term by amending the operating agreement or submitting pertinent paperwork.
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Raising Capital: Investors typically prefer businesses with indefinite terms, as they signify stability and commitment. A specific term may cause hesitation in investing, impacting your business's growth.
Weigh these considerations, keeping your unique business situation and your state's requirements in mind.
How-to Guide: Setting the Term for Your LLC
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Research State Regulations: Investigate the laws governing LLCs in your state to make informed decisions.
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Decide on the LLC's Duration: Consider your business's goals and plans when choosing a term. Ensure your decision complies with your state's guidelines.
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Include the Term in Your Operating Agreement: Draft an operating agreement outlining your LLC's term. Verify that its contents align with your state's requirements.
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File the Appropriate Paperwork: If necessary, include the term in your articles of organization when filing with the Secretary of State. Follow your state's protocols for amendments or renewals.
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Example Returning to the pop-up restaurant scenario, you'll need to research your state's requirements for LLC terms. Specify the term in your restaurant's operating agreement, ensuring it aligns with state law. With all the paperwork filed, you're all set to start your summer culinary adventure! |
Once you have term set, you can continue on with writing up your Articles of Organization.
Do you need a lawyer for this?
The biggest question now is, "Do you need to hire a lawyer for help?" Sometimes, yes (especially if you have multiple owners). But often for single-owner businesses, you don't need a lawyer to start your business.
Many business owners instead use tools like Legal GPS for Business, which includes a step-by-step, interactive platform and 100+ contract templates to help you start and grow your company.