Starting an LLC: Articles of Organization and the Purpose of LLC

Whether you’re starting a new small business or looking to generate a new business in a different state, there is a difference between the general notion of a purpose and the legal definition: the specific business intent for which your company has been formed. In many states, you are required to list a legal business purpose on your formation documents.

For example, a common business structure chosen by small enterprises and new owners is an LLC or a Limited Liability Company. It is defined as a business structure that combines the flexibility and tax advantages of a partnership with the personal liability protection of a corporation. But what’s the purpose of an LLC? What are the statements necessary by law to be stated by the company when forming an LLC? What should be in these statements? Why should LLCs have these statements?

Articles of Organization

When first starting an LLC, a business owner is required to file the Articles of Organization which includes several important details about the company. In these documents, the reason for forming the company can be reviewed by the governing state. Some states may refer to the Articles of Organization as the Certificate of Formation, or the Certificate of Organization, depending on the state.

Forming an LLC requires the filing of Articles of Organization.

Purpose of an LLC

In stating the purpose of the company, you can choose to have a general or a specific type of statement, which depends on various factors. Here, we will discuss each type of purpose statement and see how they all differ from one another.

• General Purpose Statement

For a general-purpose statement, the statement uses words that do not specifically identify the nature of the business or the company, but rather uses words that encompass the general activities of a company. This means that the general statement does not need to show what type of industry the business will focus on or what type of services will be offered by the company. 

This type of purpose statement is somewhat beneficial for businesses that aim to expand or change their focus or industry line in the coming years because there will be no need for amendments or revisions in the documents submitted when the company or business first started.

To make it easier to visualize how  to write a general-purpose statement, here are some samples:

“The purpose of (insert business name), LLC, is to conduct and operate activities related to the business as long as these are legally permitted in (insert name of state)”

“The purpose for which (insert business name here), is created is for the transaction of all lawful services for which an LLC is held under the law of the state of (insert name of state)

Here, we can see that the general-purpose statements used broad terms for describing the purpose of the company. It can also be noted that the statements do not fully reveal the nature of the business. 

• Specific Purpose Statement

Some states require specific purpose statements, especially for those forming a professional LLC. This statement would need to be particular in what type of services an LLC provides. The specific purpose statement may be composed of one or two sentences stating the main activities of an LLC and the type of work they are expected to provide.

Although it should be more specific than the general-purpose statement, the specific purpose statement could also be somewhat vague or ambiguous enough so that as the company develops, it can extend the range of activities while still meeting its declared purpose.

The following are examples of specific purpose statements:

“The purpose of this company is to provide information on customers regarding ownership of properties, and to facilitate deals between property owners and sellers.”

“The aim of the company is to make educational materials available for all students, to provide courses that can be used for credits, and to help students worldwide in their education.”

In the given statements, the nature of the company can be clearly seen. The industry where the company operates can be identified and it shows the activities pursued by the business. 

• Nonprofit Purpose Statement

Some LLCs can be formed as non-profit organizations, but few owners choose to do this because of the complexity of the requirements to be met. There are state laws that require LLCs to have a business purpose, whereas nonprofit LLCs have a charitable purpose only. Also, nonprofit LLCs would need to meet the requirements to get 501(c)(3) status, as well as IRS conditions for nonprofit LLCs. Some companies opt to register as a corporation instead of an LLC due to these complex requirements.

For those who have successfully formed nonprofit LLCs and acquired the 501(c)(3) status, their companies could operate without a federal income tax.

For the purpose statement of nonprofit LLCs, it should be broad but informational enough to signify the qualification of the company for tax exemption. The nonprofit purpose statement should also emphasize the importance and distinction of its mission from that of other organizations to exhibit the need for its existence and services.

Here are some examples of nonprofit purpose statements:

“To build free housing for the constituents of the state of (insert name of state).”

“Feeding one child at a time.”

“Bringing clean, drinkable water to every household across the nation.”

“Save the People is organized and operated exclusively for charitable purposes in accordance with Section 501(c)(3) of the Internal Revenue Code. Save the People is dedicated to reducing poverty in Kenya through humanitarian services, free educational programs, and accessible medical services for the poor people living in far-flung areas.”

In these statements, the actions and activities performed by the organization are clearly stated but the statements are broad enough to encompass all the undertakings of the organization. The statements present more of a big picture idea rather than a detailed plan on how to achieve their goals.

Basically, when forming an LLC, you would need to have the following information for filing the Articles of Formation: the business name, address, LLC purpose statement, LLC operating agreement/rules of management, duration, and the name and address of the registered agent for the LLC.

LLCs should have a purpose statement for legal purposes, statistical records, and evidence of qualification for tax exemptions (for nonprofit LLCs). For instance, if the LLC would be sued, the court can verify that the business is official and is operating within its purpose. Not following the purpose statement could lead to the dissolution of an LLC.

An LLC operating agreement, on the other hand, contains information about the membership, contributions, asset distributions, and type of management and structure of an LLC. This could also include information about the dissolution of the company.

These are the documents and information needed when forming an LLC. It is important to know when to give broad and vague information or statements so that the expansion and activities of an LLC will not be limited as the LLC grows and develops.