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What does it mean to be Properly Formed?

A company that is properly formed will have limited liability.

An LLC is properly formed when its articles are accepted by the NC Secretary of State. It has very few formal requirements, and that is one reason some people prefer to operate an LLC, rather than a corporation. You will need a federal tax id number and state tax accounts to operate, but those are not formation requirements. It is not required, but highly recommended, for an LLC to have an operating agreement.

A corporation has a bunch more steps. The shareholders have to name directors. The directors have to have an organizational meeting where they name officers, issue shares and adopt bylaws. If you miss any of these steps, the corporation is not properly formed, and the owners face the possibility of personal liability. Additionally, a corporation is required to have annual meetings of both shareholders and directors. Failure to hold these can result in personal liability for the owners.

For some entrepreneurs, LLCs are more attractive because there are fewer requirements, and there are fewer hoops to jump through to keep their limited liability.


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