Twelve LLC formation cases grouped by owners, place and paperwork

Twelve LLC formation cases, grouped by owners, place, paperwork and money. Each one turns on a single mechanism that an accepted filing does not fix. The states, fees, forms and agencies named below are real and published; the owners and businesses in the scenes are constructed, not reported.

Read them as a list of ways an LLC can be technically formed and practically wrong.

What to take away

Owners

1. The single rental property and the due-on-sale clause. A landlord moves one property into a single-member LLC and stops there. The mortgage stays in her name, on a Fannie Mae or Freddie Mac uniform note that carries a due-on-sale clause.

The LLC holds the deed; the debt and her personal guarantee stayed with her. The lender was never asked, and a transfer carries the obligations as well as the asset. The IRS treats a one-owner LLC as a disregarded entity, filed on Schedule C.

2. Unequal money and a LegalZoom or Rocket Lawyer template. Two founders contribute very different amounts and sign a template that splits everything evenly. Nobody notices until the first distribution. Contribution, ownership share and profit share are three separate numbers, and the agreement has to state all three.

LegalZoom's LLC packages start at $0 plus the state fee, and the operating agreement is an add-on in most tiers. Rocket Lawyer keeps its agreement templates behind a membership that runs about $40 a month as of 2026.

3. Member-managed by default in California and Delaware. Four owners, two of whom intended to be passive. Under the current statutes in both states, an LLC is member-managed unless the formation document says otherwise.

The default made all four managers, so the passive two could sign contracts binding the company. Manager-managed or member-managed is a real choice. Make it in the filing and the agreement, and ask the state office what its default is.

4. The owner who also draws wages. An owner who also draws wages, with nothing written about which hat she wears when. The agreement should say what an owner is paid for working, separately from what she receives for owning.

Wages mean IRS Form W-2, quarterly Form 941 and unemployment insurance. A partner paid for services instead receives a guaranteed payment, reported in box 4 of Schedule K-1.

Place

5. Delaware and Wyoming fees, and the state where the work is done. A consultant in California forms in Delaware because a forum said so. Delaware charges $110 to file a certificate of formation and $300 a year in franchise tax; Wyoming charges $100 online and a $60 annual report.

Within a year he is registered in both, with two agents and two annual reports. California charges $70 to register a foreign LLC and an $800 annual minimum franchise tax. Registration follows where you actually do business, and the definition of that is the second state's to give, not the first's.

6. The home address on the public record. A sole member lists herself at her home. The address is now on a public registry and legal papers arrive at her front door.

Registered agent services lend their own street address: Northwest Registered Agent typically $125 a year, LegalZoom $249 a year, Registered Agents Inc in the same range, roughly $125 to $250 as of 2026. Whether your own address is public, and what the alternatives are, is the subject of choosing your agent.

7. The employee in the second state. An LLC hires one person who works from another state. Payroll, registration and tax questions arrive from that state, usually a withholding account and an unemployment insurance account where the employee lives.

An employee's location can create obligations somewhere you have never set foot. Gusto, roughly $40 a month plus $6 per person as of 2026, and ADP both track the registrations. The IRS's overview of employment taxes starts the federal half; the state half belongs to that state.

Paper

8. Articles accepted, then nothing. Articles accepted, celebration held, no operating agreement, no separate account, invoices still going out under the owner's name.

The filing is the beginning of the entity, not the end. The EIN is free from the IRS, online through Form SS-4; third parties charge for it. Banks such as Chase, Mercury and Novo, and processors such as Stripe and Square, ask for one.

Separation is built by the paperwork that follows, which is why the formation walkthrough treats the filing as roughly the halfway point.

9. The downloaded agreement with a board in it. A downloaded agreement mentions a board of directors, a fiscal year ending in the wrong month, and a buyout formula the members do not understand.

Templates from LegalZoom, Rocket Lawyer and SCORE carry clauses copied from corporation documents. A partnership's tax year is the calendar year unless you elect otherwise on IRS Form 8716. An agreement you cannot explain is worse than none, because you are bound by it anyway.

10. The name the state allowed. The state accepted the name; a trademark holder elsewhere did not. State availability means the registry holds no conflicting entry, which California's bizfile search and Delaware's entity search both check.

It is not a right to use the name in trade. The USPTO runs a free search for that, and its base application fee is about $350 per class as of 2026. The agency explains the rest under what a trademark is.

Money

11. The converted sole proprietorship. An established sole proprietor forms an LLC and keeps using her old bank account, old contracts and old licenses.

Nothing moves into the entity by itself. The EIN, the business license, the insurance policy, the card processor and each contract have to be re-papered.

A single-member LLC with no employees can use her Social Security number, but most banks ask for an EIN. That list is in changes after formation.

12. The IRS Form 2553 election from a video. A single owner files a tax election because a video said it saves money, without an accountant looking at the actual income.

For a calendar-year company, Form 2553 is due by March 15 of the year it takes effect, or within two months and 15 days of formation. Form 8832 is the form that changes how the IRS classifies the entity.

An S corporation owes a reasonable salary, payroll filings, and a 1.5 percent California franchise tax with an $800 minimum there. The election brings obligations she was not running. Whether any option is worth it is the accountant's call on your numbers, and nobody else's.

The pattern

Six of the twelve are paper problems that could have been prevented in the same week as the filing. Three are place problems that come from believing a forum over a state's own definition. The rest are about owners not writing down what they meant.

None of the twelve was caused by choosing the wrong entity type, and none would have been fixed by a different one. The earlier version of that argument is in comparing the structures.

How to use the list

Read it once as a reader and once as an auditor. As a reader you are looking for the case that sounds like you. As an auditor you are looking for the one you would fail today.

Most owners find the second pass more useful, because the case that sounds like you is usually the one you have already handled.

Then take the two you would fail and put a date against each. Not a resolution: a date. The examples that stay unfixed are the ones that never acquired one.

Common questions

Which of the twelve is most common?

Number eight. Most LLCs that fail to protect anyone were never finished, and the owner does not find out until a bank, a lender or a claimant asks for the agreement.

Are any of these fixable after the fact?

All of them, at a cost. The agreement can be written late, the accounts moved, the second state registered, an election revisited inside whatever window applies. Late is more expensive than on time and much cheaper than never.

Do these apply to a one-person LLC?

Seven of the twelve do. One owner removes the disputes, not the paper.

Are these based on real cases?

No. Every scene is constructed. The states, forms, fees and services they name are real and published, and the problems are shaped like ones that state filing offices and small business guidance describe in general terms. No business, person or outcome here is real.

Is there a thirteenth?

The one that could not be written as a scene: an entity that has quietly lapsed because a recurring filing was missed. It produces no event at the time. You find out when someone searches the registry and the status line says something you did not expect.