How to Become an LLC and Follow Governance Requirements

may 02, 2019 | restaurant manager, small business entrepreneur
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Corporations have existed as a business structure for hundreds of years, and the laws governing them have developed over time. The Limited Liability Company, on the other hand, is a much newer form of business entity, and the law is still evolving to determine how LLCs ought to be handled in complicated situations. The LLC combines attributes of a corporation and a partnership, but presently the governance requirements for an LLC are much more limited.

Required: Certificate of Organization

The required governance document for every LLC is a Certificate of Organization, which might also be called the Articles of Organization. This document is required for LLCs, as a state will not recognize the LLC entity type for a business without having it. You must file your Certificate of Organization with the state and pay any mandatory filing fees in order for your LLC to be recognized.

So what kind of information is included in the Certificate of Organization? Each state might differ slightly, but the general requirements will be:

  1. Name of the LLC
  2. Purpose of the LLC
  3. LLC’s Address (both principal and mailing)
  4. LLC’s Duration
  5. Registered Agent Information
  6. Management Structure (single manager, multiple managers, all members managers) 

Additional requirements from some states might include a list of all members of the LLC, a limitation of liability clause, or the LLC’s initial contribution. An LLC will also generally have to file an annual report to the state.

You should be able to find a standard Certificate of Organization form with your state with the specific requirements for your state. Just fill in all the blanks and file the form to make your LLC official. After filing, you should keep your Certificate with your registered agent.

Needed: Operating Agreement

Beyond required governance documents, there is another document that you need—even though it’s not required. It is not mandatory for you to file an operating agreement with the state, and in some states it doesn’t even need to be in writing. But the operating agreement is probably the most important part of LLC governance, and will help you avoid complications and even lawsuits.

The purpose of the operating agreement is to determine how the LLC will be run. Since there are so few requirements for the LLC, the Certificate of Organization leaves out a lot of details of LLC governance. The operating agreement, much like corporate bylaws, is where you set up your own rules that you agree to abide by for governing the entity.

The operating agreement will cover all kinds of details. These include:

  • LLC’s managers and members functions
  • Procedure for calling members’ meetings
  • Voting procedures
  • Tax and financial guidelines, such as tax classification
  • Rules for issuing and transferring capital interests
  • What will be done with profits (and losses)
  • Conditions and Procedures for dissolving the LLC 

Together, the items in the operating agreement create a structure for governing the LLC, and must always be consistent with information in the Certificate of Organization, which must always take legal precedence. You will also want to include a procedure for amending the operating agreement inside the document itself, as well as clauses protecting members and/or officers, and a severability clause in the event that any particular part of the agreement is invalidated.

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