Your Limited Liability Company: An Operating Manual
440
Your Limited Liability Company: An Operating Manual
440eBookTenth Edition (Tenth Edition)
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Overview
Your Limited Liability Company gives you everything you need to maintain the legal validity of your LLC before the courts and the IRS. It helps you approve and document important legal, tax and business decisions to create a paper trail that avoids legal trouble.
The book shows you how to:
Your Limited Liability Company provides all the documentation you'll need, including:
The 5th edition is completely updated and revised to include the latest laws and forms for all 50 states, as tear-outs and on CD-ROM.
Product Details
| ISBN-13: | 9781413329643 |
|---|---|
| Publisher: | NOLO |
| Publication date: | 07/04/2022 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 440 |
| Sales rank: | 847,239 |
| File size: | 37 MB |
| Note: | This product may take a few minutes to download. |
About the Author
Read an Excerpt
Introduction
Congratulations -- you've formed a limited liability company (LLC)! Running your business as an LLC gives you limited liability for business debts (like a corporation) but allows you to avoid some of the legal formalities and tax rules that apply to corporations. It's one of the most flexible -- and efficient -- ways small business owners can structure their business.
To get your LLC up and running, you've already had to complete some essential start-up tasks: preparing and filing articles of organization (called a "certificate of organization" in some states) and preparing and signing an LLC operating agreement. Once
these documents are completed and the initial membership interests are sold to the founders
and initial investors, you may be tempted to forego any further formalities and get back to doing what you do best -- running the day-to-day business.
You can't simply keep running your business exactly as you did before you formed an LLC,
however. There are a few new formalities and paperwork requirements you should observe to keep proper records of important LLC decisions, transactions, and meetings. This will protect your LLC status and keep members, managers, and others apprised of the LLC's activities.
This book will help you take care of these formalities, quickly and easily. It provides all of the forms and advice you'll need to:
- hold and document LLC managers' and members' meetings
- document actions taken by managers and members without having met, and
- approve common ongoing LLC legal, tax, and business decisions.
If you don'ttake the time to properly memorialize important decisions and meetings, you
could run into trouble. You can lose crucial tax benefits if you fail to properly document and
support important tax decisions and elections. Even worse, ignoring the legal technicalities
of running your LLC may jeopardize its legal existence as a separate business entity, which
means that you could be held personally liable for LLC debts. And, of course, as time passes
and memories fade, the reasons important LLC decisions were made, and the extent of each
member's or manager's participation in these decisions, may be forgotten. This can lead to
controversy and dissension, even in the ranks of a closely held LLC, unless you use written
minutes, consent forms, and resolutions to keep track of all important LLC decisions and votes.
Here are some reasons why you should record important LLC decisions:
- Annual LLC meetings may be required under your state law. If you fail to pay at least minimal attention to this and other ongoing legal formalities, you may lose the protection of your LLC limited liability status. If this happens, LLC members can be held personally liable for the debts of the LLC.
- The paperwork you create will provide a record of important LLC transactions. This "paper trail" can be important if disputes arise. It will show your managers, members, creditors, and suppliers, as well as the IRS and the courts, that you acted appropriately and in compliance with legal requirements.
- Formally documenting key LLC actions is a sure-fire way to keep all members informed of major LLC decisions, particularly those who don't manage the business day to day.
- Owners of small LLCs commonly approve business transactions in which they have personal, material, or financial interests. Your minutes or consent forms can help prevent legal problems by proving that these "self-interested" decisions were arrived at fairly, after careful consideration of the issues and full disclosure to the disinterested owners.
- Institutions like banks, trust companies, escrow companies, title companies, and property management companies may refuse to do business with your LLC unless you submit a copy of a manager or membership resolution approving the transaction in question. If you want to take
out a loan or purchase or rent property, for example, you may have to provide a resolution authorizing the transaction.
You don't need to document routine business decisions -- only those that require formal
manager or membership approval. In other words, you don't have to clutter up your LLC records binder (see Chapter 1) with records of decisions to purchase supplies or products, maintain or improve services or products, or other day-to-day issues.
However, key legal, tax, and financial decisions absolutely should be acted on and recorded by your managers and/or members. For example, you'll want to keep records of:
- the proceedings of annual meetings of managers and/or members
- the admission of a new member by the LLC
- the buyback of an existing membership interest by the LLC
- the purchase of real estate
- the authorization of a significant loan or substantial line of credit, and
- important federal or state tax elections.
These and other important decisions should be made by your managers and/or members and backed with legal paperwork. That way, you'll have solid documentation if key decisions are questioned or reviewed later by managers, members, creditors, the courts, or the IRS.
Who Should Use This BookAlthough all LLCs should formally record important decisions, some may need more help than this book provides. This book is for smaller LLCs -- those that are privately owned and have a manageable number of members (up to about 35) and employees (up to about 50) -- whose members and managers can work together without a great deal of controversy. A typical example is a family-owned LLC or an LLC that is owned by several people.
If your LLC is larger and/or sells membership interests to the public, you will have to contend with a wider variety of viewpoints -- and may not be able to count on the cooperation of all members in making or documenting decisions. Similarly, if a significant number of your LLC's members don't participate in the day-to-day management of the business, you'll need to use procedures that keep these members informed of LLC actions. The procedures described in
this book won't be sufficient for LLCs that have to contend with a lot of disagreement among
members or have to spend significant time and energy apprising far-flung, uninvolved members
of the LLC's activities.
Managers and Members in a Small LLC
In every business, someone must be responsible for managing the day-to-day affairs of the
company, and the LLC is no exception. There are two types of LLC management structures. In a member-managed LLC, all members are responsible for managing the business; most small LLCs take this form. In a manager-managed LLC, the business is managed by just some (not all) of its members, or is managed by one or more managers who is not an LLC member.
This book refers to "managers' meetings" and "members' meetings." However, if your LLC is member-managed, then you don't have to hold separate managers' meetings to approve LLC decisions -- a members' meeting will do. If your LLC is manager-managed, then you should hold separate managers' and members' meetings to approve important LLC decisions. After all, you want to make sure that all owners (all members) agree with the important decisions made by the management team.
How To Use This Book
This book explains, step by step, how to document important LLC decisions, votes, and transactions. You'll learn how to hold meetings and create the minutes, written consent forms,
resolutions, and promissory notes necessary to record LLC business.
You can handle most of this routine paperwork yourself, using the forms and instructions in this book. And, as explained in Chapter 2, LLC owners don't necessarily have to get together in person every time you have to make an important decision -- you may also be able to approve LLC business through written consents or minutes. (The methods you can use depend on your state's law -- see Appendix B for state-by-state LLC rules.) The information in this book will help you decide which approval method to use and how to prepare the necessary records.
The paperwork you'll need to complete consists of minutes and written consent forms for members and managers, together with resolution forms that are inserted into the minutes or consent forms to show approval of various types of LLC actions. To help you complete these forms, you'll find detailed instructions and samples in each chapter. All of the forms are included in Appendix C and on the CD-ROM accompanying this book.
However, you won't have to read the whole book cover to cover to get the information and forms you need. Start by reading Chapters 1 and 2, which explain some basics about LLCs and the options you have for making decisions. Armed with this information, you can decide whether to document the particular decision you're facing by (1) holding an actual meeting of your members and/or managers, (2) preparing minutes for a meeting that doesn't actually occur (called a "paper meeting"), or (3) obtaining the written consent of your members and/or managers to the action or decision at hand.
Table of Contents
Your LLC Companion1. LLC Documents
Organize Your LLC Records
Basic LLC Documents
2. Using Meetings, Minutes, and Written Consents
Three Ways to Make and Document Formal LLC Decisions
How Your Management Structure Affects Decision-Making Requirements
Questions and Answers About LLC Meetings, Minutes, and Written Consents
3. Steps to Take Before Holding a Meeting
Types of LLC Meetings
Steps to Prepare for a Meeting
4. How to Hold an LLC Meeting
Step 1. Call and Provide Notice of the Meeting
Step 2. Prepare an Agenda for the Meeting
Step 3. Prepare Meeting Resolutions in Advance
Step 4. Get Together to Hold the Meeting
Step 5. Hold a Meeting in Cyberspace If You Have the Equipment and Know-How
Step 6. Appoint a Chairperson and Secretary
Step 7. Chairperson Calls the Meeting to Order
Step 8. Secretary Determines Whether a Quorum Is Present
Step 9. Secretary Reads Minutes or Summarizes Business of Last Meeting
Step 10. Handle Any Unfinished Business
Step 11. Officers and Committees Present Reports
Step 12. Introduce and Discuss Specific Proposals
Step 13. Take the Votes of Managers or Members
Step 14. Adjouorn the Meeting
5. How to Prepare Written Minutes of LLC Meetings
When to Prepare Minutes
Preparing the Minutes Form
6. How to Hold a Paper LLC Meeting
Decide Whether to Hold a Paper Meeting
How to Prepare Minutes of Paper LLC Meetings
7. How to Take Action by Written Consent Without an LLC Meeting
Step 1. Check Your Operating Agreement for Any Written Consent Rules
Step 2. Prepare Written Consent Form
Step 3. Place SignedConsent Forms in Your LLC Records Binder
8. Standard LLC Business Resolutions
When to Use Resolutions Included in This Chapter
Bank Account Resolutions
Assumed or "Fictitious" LLC Name Resolution
Resolution to Approve an LLC Contract
Real Property Resolutions
Delegation of Authority and Approval of Individual Contracts
Certification, Affidavit, or Acknowledgment of LLC Decision or Document
9. LLC Tax Resolutions
LLC Corporate Tax Treatment Election
Resolution for Approval of Independent Audit
Approval of LLC Tax Year
10. Resolutions to Amend the LLC Articles and Operating Agreement
Decide Whether You Need to Amend Your Articles or Your Operating Agreement
Amending Articles of Organization
Amending the LLC Operating Agreement
11. LLC Membership Resolutions
Distributions of LLC Profits to Members
Additional Capital Contributions by Members
Admitting LLC Members
Withdrawal of LLC Members
12. LLC Hiring and Compensation Resolutions
Approving Salaries for Members and Employees
Using Independent Contractors
Appointing and Paying Officers
Compensation for Attending LLC Meetings
Indemnification for Members, Managers, Officers, and Employees
13. Loans to the LLC
Bank Loans to the LLC
Loans to the LLC by Members and Other Insiders
Promissory Notes Overview
Promissory Notes for Loans to LLC
14. Loans by the LLC
Overview of Loans to Insiders
Legal Considerations for Loans to Insiders
Tax Consequences of Insider Loans
Resolution for LLC and Member Approval of LLC Loans to Insiders
Promissory Notes for Loans by LLC
Release of Promissory Note
15. Self-Interested Business Dealings Between the LLC and Its Members or Managers
Legal Duties Owed by Members and Managers
Resolution for Approval of Member or Manager Self-Interested Business Deals
16. Lawyers, Tax Specialists, and Legal Research
How to Find the Right Lawyer
Finding the Right Tax Adviser
How to Do Your Own Legal Research
A. Appendix A: How to Use the CD-ROM
Installing the Form Files Onto Your Computer
Using the Word Processing Files to Create Documents
Files Included on the Forms CD
B. Appendix B: State Information
C. Appendix C: Forms
Preparing for LLC Meetings
Meeting Summary Sheet
Meeting Participant List
Notice of Meeting
Acknowledgment of receipt of Notice of Meeting
Membership Voting Proxy
Certification of Mailing of Notice
LLC Minutes and Written Consents
Waiver of Notice of Meeting
Approval of LLC Minutes
Cover Letter for Approval of Minutes of LLC Meeting
Written Consent to Action Without Meeting
Standard LLC Business Resolutions
Authorization of Treasurer to Open and Use LLC Accounts
Authorization of Treasurer to Open and Use Specific LLC Account(s)
Authorization of LLC Account and Designation of Authorized Signers
Authorization of Rental of Safe Deposit Box
Adoption of Assumed LLC Name
Approval of Contract
Approval of Lease of Premises by LLC
Purchase of Real Property by LLC
Authorization of Sale of Real Property by LLC
Delegation of LLC Authority
Ratification of Contract or Transaction
Rescission of Authority
Certification of LLC Resolution
Affidavit of LLC Resolution
Acknowledgment
LLC Tax Resolutions
LLC Election of Corporate Tax Treatment
Approval of Independent Audit of LLC Financial Records
Approval of LLC Tax Year
Resolutions to Amend the LLC Articles and Operating Agreement
Approval of Amendment to Articles of Organization
Approval of Restatement of Articles of Organization
Amendment of Articles Form
Amendment of LLC Operating Agreement
Membership Resolutions
Approval of LLC Distribution
Approval of Additional Contributions of Capital by Members
Admission of New Member
Approval of Transfer of Membership
Approval of LLC Purchase of Interest of Withdrawing Member
LLC Hiring and Compensation Resolutions
Approval of LLC Hiring
Approval of Bonuses and Salary Increases
Approval of Independent Contractor Services
Appointment of LLC Officers
Authorization of Payment for Attending LLC Meetings
Annual Stipend for Attendance at LLC Meetings
LLC Indemnification and Insurance
Loans to the LLC
Authorization of Loan to LLC at Specific Terms
Authorization of Maximum Loan Amount to LLC
Authorization of LLC Representative to Borrow Funds on Behalf of LLC as Needed
Authorization of Loan Terms Secured by LLC Property
Authorization of Line of Credit
Authorization of Line of Credit With Cap on Each Transaction
Authorization of Line of Credit Secured by LLC Property
Approval of Loan to the LLC
LLC Promissory Note: Installment Payments of Principal and Interest (Amortized Loan)
LLC Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) Secured by LLC Property
LLC Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) With Balloon Payment
LLC Promissory Note: Periodic Payments of Interest With Lump-Sum Principal Payment
LLC Promissory Note: Lump-Sum Payment of Principal and Interest on Specified Date
LLC Promissory Note: Lump-Sum Payment of Principal and Interest on Demand by Noteholder
LLC Promissory Note: Non-Uniform Schedule of Payments of Principal and Interest
Loans by the LLC
Approval of LLC Loan to Insider
Individual Promissory Note: Installment Payments of Principal and Interest (Amortized Loan)
Individual Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) Secured by Property
Individual Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) With Balloon Payment
Individual Promissory Note: Periodic Payments of Interest With Lump-Sum Principal Payment
Individual Promissory Note: Lump-Sum Payment of Principal and Interest on Specified Date
Individual Promissory Note: Lump-Sum Payment of Principal and Interest on Demand by Noteholder
Individual Promissory Note: Non-Uniform Schedule of Payments of Principal and Interest
Release of Promissory Note
Self-Interested Business Dealings between the LLC and Its Members or Managers
LLC Approval of Transaction Benefiting a Member or Manager
Index
Interviews
There are now over 2,500,000 LLCs in the United States. But many new LLC owners form their LLC and then have no idea how to vote on resolutions or document decisions, or even know what decisions they need to make. LLCs need to keep minutes of important decisions just like corporations. Without recording important business and tax decisions in minutes forms, owners risk paying out of their own pocket for business debts and losses.
This book has minutes forms and resolutions for any decision an LLC will have to make, and explains how to use them. Every form a new LLC could need to record a decision is in this book.