cover letter. Let the secretary of state’s office staff know that they can contact you if they have any questions concerning your filing. In some states, minor errors in the articles can be corrected over the telephone without the need to resubmit the articles.
PURPOSES AND POWERS
For what purposes can an LLC be formed? A purpose is a statement of why the LLC was formed. Once formed, what powers may an LLC exercise? Powers tell us what an LLC can do to carry out its purpose. Because LLCs are creatures of statute, the answers to these questions are found in the state LLC acts.
Under the ULLCA and state statutes, an LLC is presumed to be formed to engage in any lawful purpose unless a more limited purpose is stated in the articles. You could state in your articles that the LLC is formed to operate a retail clothing store and for no other purpose; however, it would be foolish to limit your purposes. Without any limitation in the articles, the LLC may engage in any lawful act, subject, of course, to any other statutes or laws that might impact the LLC’s activities or business. Nearly every model articles of organization provided by secretary of state’s offices offers purpose language that is as broad as possible.
With respect to LLC powers, the ULLCA and other limited liability company acts include the powers for an LLC:
• To sue and be sued in the LLC name
• To make and amend its operating agreement
• To acquire and own real or personal property, whether by lease, purchase, or otherwise, and to use or improve that property
• To sell, mortgage, lease, or otherwise dispose of all or any part of its property
• To acquire stocks, bonds, or notes of other LLCs, partnerships, or other businesses
• To make contracts and guarantees; borrow money; issue notes, bonds, and other obligations; and secure any of its obligations by mortgage of any of its property
• To lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment
• To be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity
• To conduct its business anywhere, subject, of course, to the foreign LLC statutes of other states
• To elect managers and appoint officers, employees, and agents, define their duties, fix their compensation, and lend them money and credit
• To establish benefit plans
• To make donations for the public welfare or for charitable, scientific, or educational purposes
• To transact any lawful business
• To do anything else that is not illegal and that furthers the business and affairs of the LLC
A Note on Prohibited Business Purposes
Some types of licensed professions are not legal purposes for LLCs and corporations. The practice of law and the practice of medicine are the most universal and most illustrative examples of this prohibition. Because lawyers and doctors face professional malpractice liability for errors that they make in their practices, it would be unfair to the public to allow such professionals to enjoy liability protection from such errors. The types of business purposes that a given state will allow will vary widely. For example, California prohibits use of the LLC or corporate forms for any profession that requires a “license, certification, or registration.” This prohibition excludes more than 100 professions, including such diverse practitioners as lawyers, real estate brokers, and pest control operators.
As mentioned earlier, in states that allow it (not all do), licensed professionals must use a special form of LLC, the professional limited liability company (PLLC). We discuss the PLLC in some detail in Section VI: Related Concepts. Professional LLCs are complex entities and their formation and operation should be left to the pros.
▼ Good to Know
As a practical matter, banks, suppliers, and others with whom you may need to establish a credit or working relationship may request to see copies of your articles of organization and operating agreement and may be more apt to establish a relationship if some specific description of purposes and powers is included in the articles.
LIMITED LIABILITY COMPANY NAMES
Every LLC must have a name; however, you may be surprised to learn how often the first or second choices for an LLC name are not available for one reason or another.
The most important consideration when choosing a name is ensuring tha no other person or entity is currently using the name. This consideration is guided by two factors. First, your use of a company name may infringe on the trademark or service mark rights of others. Infringing on trademark or service mark rights may result in legal complications. Second, the secretary of state’s office will not register a new LLC with the same name as an existing LLC.
Thus, you may wish to search the trademarks and LLC names in use to ensure that your desired name is available.
Searching for Existing Trademarks
Begin by performing a trademark search. You can hire a professional service to perform a trademark search for you. This fee for this service can range between $300 and $1,200. The value of such professional search services has been eclipsed by free services on the internet.
▼ Definition
A trademark is a word or mark that distinctly indicates ownership of a product and is legally reserved for the exclusive use of the owner.
A service mark is the same as a trademark but for services rather than goods.
The terms are interchangeable and their meanings are nearly identical.
You can search registered and pending trademarks at the U.S. Patent and Trademark Office web site at www.uspto.gov, using the Trademark Electronic Search System (TESS). Use the New User Form Search. In the search window, enter the name that you wish to use in the “Search Term” box. Make sure the “Field” term is set to “Combined Word Mark.” To ensure that your search effectively locates all potential conflicts, be sure to do the following:
• Search for phonetic variants of your proposed name, because phonetically similar marks can cause a trademark conflict. For example, if you want to use the name Cybertech, search for Cybertek, Cybertex, Sybertex, etc.
• Search for both the plural and singular versions of your proposed name.
• If your name uses more than one word, search for each word individually.
• Follow the instructions in the use of “wildcard” search terms.
Searching for trademarks is an imperfect science; no search can be expected to discover all potential
