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Forming your Business Entity

Naming Your Entity

If you choose to form an entity and you have determined which type of entity to form, you will need to select a name for your entity. There are restrictions about what name you can use.

  • Do not use a name that is the same as or similar to the name of another entity that is already registered in your state. This is prohibited under state law.
  • Do not use the words “corporation” or “incorporated” (or any abbreviations of these words) unless your entity is a corporation. This is prohibited under state law.
  • Do not use any of our Marks in the name of your entity. This is prohibited under the Franchise Agreement. For example, the name “Vanderburgh House Boston, LLC” is not allowed.
  • Do choose a professional-sounding name. Your entity name will appear in your contracts and in other places where your customers and suppliers will see it.
  • Do not choose a name that is long or confusing.
  • Do not use profanity or off-color puns in your entity name.

 

Approved Entity Name Examples

  •     Elmwood Recovery, LLC
  •     Lucas Recovery Services, LLC
  •     Beechwood Sober Living, LLC

 

Choosing a Registered Agent

When you are forming an LLC, you must choose a registered agent, also known as a statutory agent. This person to receives lawsuits and official documents on behalf of the LLC.

Each state has its own registered agent requirements, but in general, the agent may be a person who is at least 18 years old or a business entity that provides registered agent services. The agent must have an address in the state (known as the “registered office”) where he or she is available during normal business hours to accept documents.  Many LLCs name a member or employee to act as agent or they use a registered agent company.

Forming Your Entity

To officially create a business entity, you will need to file your formation document with the state. For example, Massachusetts accepts new corporation and LLC registrations through the Secretary of the Commonwealth Corporations Division.

The formation document is typically called the Articles of Organization. In some states, this document is known as the Certificate of Formation or the Certificate of Organization. Some states allow for entities to be filed online. The costs to form an entity typically range from $125 to over $600. Massachusetts, for example, charges $500 plus a $20 expedited filing fee.

After you file your formation document, the state must approve your filing. Once approved, your entity will be formed. Most states allow you to download your approved formation document and a Certificate of Organization (or similar confirmatory document). You will need this to set up your business bank account.

Creating Your Operating Agreement or By-Laws

LLCs are governed by operating agreements and corporations are governed by by-laws. These documents outline the ownership structure and roles and responsibilities of the members and managers (or in the case of a corporation, the shareholders and board members). In the event of an entity owned and/or managed by multiple members or shareholders, such a document is very strongly recommended. The contents of your entity’s governing documents are up to you. It is your choice how to structure your business management and organization.

Although most states do not officially require you to have an operating agreement or by-laws in order to form an entity, it’s still a good idea to have one. Using an LLC operating agreement as an example, here are six main sections in the Operating Agreement:

  • Organization: Outlines when and where the company was created, who the members are, and how ownership is structured.
  • Management and Voting: Addresses how the company is managed, as well as how the members vote.
  • Capital Contributions: Covers which members financially support the LLC, and forms a structure on how more funds will be raised in the future.
  • Distributions: Outlines how the company’s profits and losses are shared among members.
  • Membership Changes: Describes the process for adding or removing members, as well as if and when members can transfer their ownership shares.
  • Dissolution: Explains the circumstances in which the LLC may be dissolved.

Staying Up-to-Date with State Agencies

Your state’s laws may require business entities to keep certain records. These might include meeting minutes, resolutions and ownership records. You may also need to file an annual report and pay an annual fee. The rules vary based upon the type of entity, and from state to state, so consult your state’s laws or a business lawyer to learn more about your obligations.

If you will do business in a state other than the one you formed your business in, you must register to do business in that state. The procedure is similar to the one you followed when forming your business, and it may require additional tax and reporting obligations in the other state.

To maximize your protection and avoid tax penalties, always keep personal and business finances separate, observe proper procedures and keep complete and accurate records, maintain adequate insurance, and file and pay taxes on time.

 

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