How to form an LLC in Utah and why it is important to consult a business attorney when forming an LLC in Utah.

A limited liability company (LLC) is a business entity that allows the owners of the company (the members) the benefit of limited liability while also allowing the company to be treated like a partnership for purposes of taxation. Think of an LLC as a hybrid of both a corporation and a partnership. In a corporation, the owners (stockholders) have limited liability. That means that their liability for things that the corporation does is limited to their investment in the company. For example, if you buy 100 shares of ABC, Inc., and then one of ABC’s products malfunctions and hurts a customer, and that customer sues ABC, the worst thing that can happen to you as a stockholder is you lose the value of the stock that you own, because you have limited liability. That injured customer cannot sue you personally to try and get at your other assets. The downside of forming a corporation entity is that money earned by the corporation is taxed twice before it passes to the stockholders: Once when the money is earned by the company, and again when it is distributed to the stockholders as dividends.

The Utah Limited Liability Company Act governs the formation and existence of Utah LLCs. To form an LLC, you must file Articles of Organization with the Utah Division of Corporations. You must also perform a name availability search to make sure that the name of your business is not already taken by another Utah LLC. On the federal level, you must apply for and obtain a federal EIN (Employer Identification Number). While not a requirement, you should also have an Operating Agreement in place that governs, among other things, how the LLC is to be managed and what requirements must be met for certain actions by the members (buying and selling shares, issuing shares to new members, dissolution, and other major company decisions).

Once your LLC is formed, there are certain formalities you must maintain to ensure you maintain limited liability. In other words, you need to treat the company as a separate entity. Some actions, such as comingling company funds with your personal funds, undercapitalizing the company, and failing to hold regular member meetings, can cause you to lose limited liability protection. If this happens, it is possible for some third party to “pierce the corporate veil” and actually hold you personally liable for something done by company or one of the other members.

If you are planning to set up a business as a Utah LLC, it is important that you consult with a competent attorney experienced in small business law in the state of Utah. An attorney can help you draft the Articles of Organization according to the legal requirements, file them with the Utah Division of Corporations, and prepare the Operating Agreement. An attorney can also help you apply for an EIN and perform a name availability search. Perhaps most importantly, an attorney will help you understand the formalities you must maintain in order to ensure that your liability is limited.

For additional reading:

The Benefits of an LLC

A Business Succession Plan

Navigating Business Acquisitions

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