How to Answer the LLC Purpose Statement (with Examples)
An LLC purpose statement describes the reason for forming the business. This description typically only needs to be a sentence or two and briefly explains what type of business the LLC is in. It is important to note that a purpose statement is legally distinct from your company’s vision or mission statement. While your overall vision can be based on an abstract goal, your statement can be specific to your industry or general enough to allow your company to conduct any business activities legally permitted in the state.
Related: How to form an LLC
In most states, you only need a general-purpose statement in the Articles of Organization. In contrast, other states require a specific purpose statement about the primary business activities of the LLC. In states that need only a general purpose statement, declaring the business activities may be as simple as checking a box on the formation documents.
Some states (including Alaska, Arkansas, Mississippi, Georgia, Louisiana, New Hampshire, and New Mexico) use NAICS (North American Industry Classification System) codes instead of requiring a written business purpose. These codes are the classifications used by government agencies to identify industries and business activities
Why does an LLC need a purpose statement?
Including a purpose statement in your LLC formation documents can be important if legal action is brought against the entity. A court may examine the purpose statement to determine whether you, as the owner, are personally liable. Courts may determine that a business with an unclear or unstated purpose is merely an alter ego and may seek to enforce monetary judgments against the business owner as an individual.
Another important reason to exercise care when declaring a business purpose is that your company’s future existence may depend on it. An LLC member could petition the court to dissolve the company if it becomes unlikely that the LLC can reasonably fulfill the stated purpose. This issue may arise if there are not adequate provisions regarding your business activities and if your contracts and agreements are silent on dispute resolution among LLC members.
For both of these reasons, carefully consider the language in the LLC operating agreement for a well-stated business purpose and other related provisions, in addition to the purpose declared on the formation documents.
Examples of an LLC Business Purpose Statement
In most states, a general purpose is usually sufficient. However, if you are creating a Professional Limited Liability Company (PLLC) (which is basically an LLC for businesses that require a state license, such as an accountant, locksmith, etc.), a more specific purpose statement explaining the type of professional services the PLLC will provide will be needed. Some examples of general and specific statements are below.
Related: What is a Professional Limited Liability Company?
General
If your state allows for a general business purpose statement, the following are some examples of what this may look like:
“The purpose of Business Name LLC, is to operate and conduct all lawful business activities legally permitted in the state of A.”
“The purpose for which XYZ, LLC, is formed is for the transaction of any and all lawful purposes for which a limited liability company may be organized under the laws of the state of A.”
Specific
If your state requires a specific purpose to be declared when forming an LLC, you can simply state your primary activities in a sentence or two. Below are some examples of what your specific purpose may look like:
“The purpose of XYZ, LLC, is to purchase, sell, hold, own, and operate real estate within the state of A, and all other legal acts permitted by limited liability companies in the state of A.”
“XYZ, LLC, seeks to engage in the activity of construction, property acquisition, and the sale and transfer of real property, and all other legal acts permitted by limited liability companies in the state of A.”
While this type of statement should be specific to the type of work you anticipate, it should also be ambiguous enough to allow for your LLC’s purpose to develop or grow over time. However, it should be noted that you can change your purpose statement at any time by filing an amendment. You may not necessarily need to formally change your statement if you leave room for several other activities, as in the examples above.
Relevant Articles:
Piercing the Veil of an LLC-Personally liability as the owner of an LLC: https://www.baylor.edu/content/services/document.php/140022.pdf
Can you change the business purpose of an LLC?
In any case, the answer is yes, however the process differs between states and operating agreement structure.
In some states where the purpose was been specified in the original formation documents such as the Articles of Organization, Certificate of Formation, etc., then an amendment will need to be made with the state.
If the business purpose was indicated in the LLC Operating Agreement, the Operating Agreement will need to be updated and accepted by the members.
