Using Rocket Lawyer and forming an LLC

[Mary Hoyt]

has anyone used rocket lawyer to establish an LLC? we are under contract on our first investment property - a triplex in the atlanta area - my dad is suggesting we form an LLC to protect our personal assets in case of lawsuit or the market spiraling again one day.

[Keith Barton]

There are 3 big "components" (can't come up with a better term at the moment) to forming an LLC (or any business entity):

1) Formal paperwork to be filed with the state;
2) Internal paperwork (e.g., operating agreement, bylaws, meeting minutes [if any], etc...); and,
3) Understanding proper procedures

FORMAL PAPERWORK
The formal paperwork with the state is pretty simple and straight-forward: typically you need to state the proposed name of the entity, the address of the entity, name a statutory agent who will receive notice of official information, name of who is forming the entity, and signature of the person forming the entity. You may also need to state the entity's purpose and how long the entity plans to be in business (the state sometimes assumes these will be a default answer unless otherwise stated.) Each state has its own rules, so there might be some other variation, but there's not usually too much variation.

Send in the completed paperwork and the filing fee and (as long as the name you want is allowable, and the forms are completed correctly) you have a business entity.

INTERNAL PAPERWORK
The internal paperwork should be tailored to your individual circumstances. Again, each state varies in its requirements, but state statute will create a default set of rules for operating the business entity. If you have no operating agreement (for an LLC), or other equivalent document, the statutes dictate how things should be done. You should ALWAYS have your own document (even if you don't want to change the default operation under the statutes). Title companies need to see your operating agreement when you purchase property. Banks need to see your operating agreement if you ask for money. People with whom you do business may want to see your operating agreement. If you are ever sued, your operating agreement may play a big role in the lawsuit.

Form documents may or may not meet your needs. Do you understand what the form document means (all of it)? Do you know what may be missing from a form document? Do you know what should NOT be in the form document?

Don't get me wrong - I'm not trying to be all doom and gloom on services such as these - I'm simply saying you really should be aware of what you are getting and whether it meets your needs. If you can do that by using a company formation service, then that's great - you'll save yourself money. You may never look at your operating agreement again (except to hand copies over to the people mentioned above.) But if the sh*t hits the fan, and the operating agreement doesn't serve your needs, you'll wish things had been different.

UNDERSTANDING PROCEDURES
Even with all the paperwork in order, you can get in trouble if you don't understand how to do things the right way. I don't mean criminal trouble (unless you really screw something up), I mean financial trouble (which may or may not involve a lawsuit).

Whether you choose a company formation service or use an attorney to form your company - make sure you understand how to properly sign documents, manage the business finances, keep your business entity operations separate from your individual operations, tax planning to meet your needs, even something as simple as sending email or snail mail letters to those with whom you want to do business, business cards, letterhead, etc....

Whether you use a formation service or hire an attorney, it behooves you to understand each of these 3 components.