A certificate of formation is a document that creates a new limited liability company (LLC) under state law in the U.S. It states specific information about the business that is prescribed by an authorizing statute. The LLC begins its official existence as a business entity once the certificate is filed with and accepted by a state’s business division.
An LLC is a legal business entity type, like a corporation or a partnership. It is a construct that was developed in the U.S. and popularized in the 1980s when states began passing statutes authorizing the LLC as a business type that could operate within state borders. The LLC provides its owners with special tax treatment that makes it a more attractive business formation for a new business under certain circumstances. Before a business owner can set up shop as an LLC, he must draft an organizing document under state law and register the LLC with a state by filing it.
Each state has a limited liability company statute that details how a new business owner can create an LLC and register it with the proper authorities. Part of the procedure required by every state statute is the creation of an authorizing charter document, typically called a certificate of formation, in accordance with the instructions outlined in the law. The certificate is drafted and signed by an owner of the business or an authorized representative, such as an attorney or accountant.
A certificate of formation will typically be a one-page document. It will only need to contain the bare minimum amount of information that the state requires for registration, but can contain other provisions as long as the additional information does not violate the law. Most states want the business owner to list a unique name for the LLC and designate a registered agent for service of process in case the business is sued. A responsible person must sign, date, and file the certificate.
The state can choose to accept the certificate or send it back for modification. If it accepts the certificate, it will stamp the official date of acceptance on the document and scan it into the state’s business database. The certificate of formation becomes the LLC’s official authorizing business license. It proves that the LLC was properly formed under state law and has permission to conduct business operations in the state as of the date stamped on the certificate.
