LLC Documentation: Required vs. Needed

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In the world of business entities, the Limited Liability Corporation (LLC) is a relative newbie in the United States. Unlike the corporation, which has been around since before the birth of the United States, laws concerning LLC's can still be a bit vague and controversy can arise when legal issues concern the LLC. Due to this, LLC’s have limited governance guidelines, which will be settled in due time.

Required vs. Needed

For the purposes of this article, a distinction must be made between a “required” governance document and a “needed” governance document. A “required” document will be mandated by state law. If “required” documents are missing or are incomplete, the LLC may not be recognized by the state government. “Needed” governance documents are not strictly required, however, they are documents that an LLC should have to prevent future complications and the possibility of major lawsuits. LLC's also require that certain annual (or biennial) reports be filed with their state of organization, however, that will not be addressed in this article.

Required Governance Document- the Certificate of Organization

Every LLC is required to attain a Certificate of Organization (a.k.a. Articles of Organization). This certificate serves as proof that the LLC exists with the state government. The state of organization issues the certificate when an LLC files their Articles of Organization and (of course) the required state fees.

Similar to a driver’s license for personal citizens, the Articles of Organization lists the basic information of the business. Most states have minimal requirements for these articles which include:

  1. The LLC’s name
  2. The purpose of the LLC
  3. The principal and mailing address of the LLC
  4. The duration of the LLC
  5. The name and address of your LLC’s registered agent
  6. The management structure

Beyond these, some states will require that the LLC list its members and the initial contribution to the LLC, along with a limitation of liability clause. When considering what provisions are needed in your specific situation, it is wise to consult with a professional. Once complete the Certificate of Organization should be kept with the registered agent.

Needed Governance Document- The Operating Agreement

While states do not require that an LLC file an operating agreement (in fact, some states do not even require the operating agreement to be in writing to be enforceable), we would still recommend that your LLC develop an Operating Agreement. The minimal requirements for a Certificate of Organization may leave many holes in a business’s governing principles. A written Operating Agreement fills in these holes in the same way that written bylaws will for a corporation.

An Operating Agreement will provide a framework for how the LLC will be managed and will generally cover the following information:

  • The job functions of LLC managers and members
  • The method under which members’ meetings may be called
  • The formal process of member voting
  • Tax and financial information, such as tax classifications, accounting methods, etc.
  • The procedure for issuing and transferring capital interest from members and any limitations which may be placed on this process
  • Profit and loss allocation
  • Methods for amending the agreement
  • Methods of dissolution for the LLC

Many Operating Agreements also contain indemnification provisions which may help protect LLC members, officers, or both, and a severability clause which allows the operating agreement to survive and be enforced even if a particular provision is deemed to be invalid. An LLC’s Operating Agreement must be in step with the Articles of Organization. If there are any differences between these two documents, the Articles of Organization will take precedence.

Other LLC Documentation

Other potential paperwork requirements and considerations when forming an LLC may include LLC member meetings minutes, a Federal Employer Identification Number, state and local government business licensing, and state business and employer tax registrations.

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