Forming a Limited Liability Company in Utah

A limited liability company (LLC) is a fairly new type of business entity that is, in essence, a cross between a partnership and a corporation.  An LLC has the flexibility of partnerships and provides its members (owners) the shield of limited liability like a corporation.

LLCs are creatures of statute.  Therefore, to form an LLC, the requirements of the statute must be followed.

An LLC is formed when “Articles of Organization” (called “Certificate of Organization” in some states) in the proper form are filed with the Utah Division of Corporations (and the filing fee is paid).   Usually, the Articles of Organization are simple “bare-bones” documents that include only the minimum information required by law.

Another LLC formation document that is absolutely essential is an “Operating Agreement.”  The Operating Agreement is similar to a partnership agreement.  It is a detailed document that spells out the duties and rights of the members and managers and how the LLC is to be governed.  The Operating Agreement must be signed by all of the members.  It is a private document and is not filed with the Utah Division of Corporations.

There are no specified forms for the Articles of Organization. However, Utah law specifies the minimum provisions that are required.  Utah law also allows numerous optional provisions that may be included in either the Articles of Organization or the Operating Agreement.  Competent legal advice is needed to determine which options should be included and which ones should be avoided.

Only one person is required to form an LLC in Utah. That person may be a member of the LLC (for an LLC that will be member-managed) or may be a manager of the LLC (for an LLC that will be manager-managed) or may be someone (a lawyer, for example) who is called an “organizer” and who will be neither a member nor a manager. Therefore, one critical decision that must be made before forming an LLC is whether the LLC is to be member-managed or manager-managed. Many other consequences flow from this fundamental decision for the structure of the LLC.

In a member-managed LLC, each member has authority to bind the LLC. In a manager-managed LLC, only the manager has authority to bind the LLC.

To be filed by the Utah Division of Corporations, the Articles of Organization must contain the following, at a minimum:

  • name of the LLC (which must be unique and not duplicate the name of another entity)
  • the business purpose for which the LLC is organized
  • the name and street address of the initial registered agent for the LLC (the person to receive legal notices for the LLC–usually a lawyer)
  • the signature of the initial registered agent
  • the street address of the LLC’s principal office (where the LLC records are kept)
  • the name and street address of each organizer who is not a member or manager
  • a statement indicating whether the LLC will be member-managed or manager-managed and, if member-managed, the name and street address of each member or, if manager-managed, the name and street address of each manager

The Articles or Organization may contain other statements or information, if desired.

Once the Articles of Organization are accepted for filing by the Utah Division of Corporations, the LLC is legally formed.  However, much more is needed.  With the LLC skeleton in place, cash or property needs to be transferred to the LLC, the Operating Agreement needs to be finalized and signed by all members (and managers), bank accounts need to be opened, the LLC record book needs to be prepared and several other basic actions need to be taken.

To correctly form an LLC and to obtain the full benefits of the LLC form, advice and assistance from a competent lawyer are essential.