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| Appendix A How to Use the CD-ROM | |||||
| Appendix B State Information | |||||
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| Index |
The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.
The Used, Rental and eBook copies of this book are not guaranteed to include any supplemental materials. Typically, only the book itself is included. This is true even if the title states it includes any access cards, study guides, lab manuals, CDs, etc.
LLC Documents and Laws
A. ORGANIZE YOUR LLC RECORDS 1/2 1. Articles of Organization 1/4 2. LLC Operating Agreement 1/5 3. Membership Certificates and Stubs 1/5 4. Membership Register 1/6 5. Membership Transfer Ledger 1/6 6. Minutes of LLC Meetings and Written Consent Forms 1/6
B. STATE LLC FILING OFFICES 1/6
C. STATE LLC LAWS 1/7
D. OTHER STATE LAWS 1/8
Calling (requesting), providing notice for, holding and voting at meetings of your managers or members, along with recording all decisions made by your LLC, necessarily means becoming familiar with a bucketful of new terminology and procedures. While mastering this material isn't difficult, it does require attention to some unfamiliar detail. In this chapter we provide legal and practical background information about basic LLC documents and the state LLC laws on which they are based.
When to skip this material
If you recently formed an LLC and feel you understand the purpose of your articles of organization and your operating agreement and the need for LLC records, much of the material in this chapter may seem old hat. If so, you may wish to skip ahead to Chapter 2, where we present an overview of the common methods of ongoing LLC decision-making, including holding LLC meetings and preparing written consents of manager and member decisions.
A. Organize Your LLC Records
Anyone who sets up an LLC needs to be able to quickly locate key organizational documents such as their articles of organization and their operating agreement. Because these are really the Constitution of your LLC, you'll refer to them again and again. When using this book to produce LLC minute and consent forms, you'll often be referred to these organizational documents.
If you have not already done so, set up an LLC records binder that contains all key LLC documents. You can do this on your own with a three-ring binder, or by using a customized LLC records binder designed for the purpose. (You may order an LLC records binder through Nolo; see the order page at the back of this book.)
Your LLC records binder should contain:
ò articles of organization (see Section A1, below)
ò operating agreement (see Section A2, below)
ò membership certificates and stubs (if your LLC
decides to issue certificates to members-see
Section A3, below)
ò membership register listing the names and addresses
of your members (see Section A4, below)
ò membership transfer ledger showing the dates of
any transfers of membership interests by a member
(see section A5, below), and
ò minutes of LLC meetings and written consent
forms (see Section A6, below).
If someone helped you form your LLC, such as a lawyer, accountant, paralegal or financial planner, you probably received copies of these documents. However, some lawyers attempt to hold on to LLC records in the hope that you will have them take care of all ongoing technicalities. If so, you will need to request copies of all the LLC documents in your client file. (This is your property, so don't take "No" for an answer.)
If you can't locate a copy of your articles, write your Secretary of State's LLC filing office and request a certified or file-stamped copy of your articles (Appendix B lists state LLC filing offices and their addresses and phone numbers). It's a good idea to call first so that you can also send the correct copying fee, which should be just a few dollars or so.
LLC Records Required Under State Law
In many states the LLC Act has a provision listing the records required to be maintained by LLCs. These records must be available for inspection by members and managers. Below is a representative statute, taken from Section 9 of the Massachusetts Limited Liability Company Act. Note that copies of tax returns and a list of members' capital contributions are required to be kept, either as part of the operating agreement or in a separate statement. This is typical of state LLC records requirements.
a. Each limited liability company shall keep at its records office-usually the principal office-the following:
1. a current list of the full name and last known address of each member and manager;
2. a copy of the certificate of organization [this is the Massachusetts name for articles of organization] and all certificates of amendment thereto, together with executed copies of any powers of attorney pursuant to which any certificate has been issued [in case a certificate was signed by an outsider under a power of attorney];
3. copies of the limited liability company's federal, state, and local income-tax returns and reports, if any, for the three most recent years;
4. copies of any then effective written operating agreements and of any financial statements of the limited liability company for the three most recent years; and
5. unless contained in a written operating agreement, a writing setting out:
i. the amount of cash and a description and statement of the agreed value of the other property or services contributed by each member and which each member has agreed to contribute;
ii. the times at which or events on the happening of which any additional contributions agreed to be made by each member are to be made;
iii. any right of a member to receive, or of a manager to make, distributions to a member; and
iv. any events upon the happening of which the limited liability company is to be dissolved and its affairs wound up.
b. Records kept under this section shall be subject to inspection and copying at the reasonable request and at the expense of any member or manager during ordinary business hours.
1. Articles of Organization
The first key organizing document all LLCs must have is the articles of organization (in some states, this document is called a certificate of organization). An LLC comes into existence when its articles of organization are filed with the state LLC filing office. The articles normally contain fundamental structural information about the company, such as the name of the LLC, whether the LLC is managed by all of its members or by specially selected managers (most smaller LLCs are member-managed), the names and addresses of its members and/or managers and its registered agent and his or her office address (this is the registered office of the LLC to which legal papers can be sent by the state and by persons serving legal process on the LLC). For the majority of small LLCs, no additional information is required in this document. However, larger LLCs sometimes add optional articles containing special provisions if they wish to set up a more complex structure for their LLC.
Example: The Equity Investors Capital LLC adopts articles that specify a multi-class membership structure for the LLC, consisting of Class A Voting Memberships and Class B Nonvoting Memberships. The reason for this two-class membership structure is that the primary investors (Class A) will be issued voting, managing memberships, while nonmanaging members will receive nonvoting membership interests (Class B).
To prepare and file articles for a new LLC
If you have not yet formed your LLC, Nolo publishes Form Your Own Limited Liability Company , also by Anthony Mancuso, which shows you how to prepare and file articles of organization with your state's LLC filing office and takes you through the other LLC formation steps including the preparation of an LLC operating agreement. This book is good in all states, with state-by-state rules included in Appendix A. In addition, Nolo's LLC Maker software creates articles of organization and operating agreements for every state.
Amending Your Articles: Do Your Articles Limit the Term of Your LLC?
Early state LLC statutes, adopted when the LLC legal form was just gaining ground, required LLCs to limit the duration of the LLC in their articles-for example, to a term of 30 years-on which date the LLC would automatically dissolve. This state term-limit requirement was tied to old federal tax classification rules that said LLCs needed to limit their term in order to be treated as a partnership for tax purposes (the tax treatment most LLC owners desire for their LLC). Under the current IRS rules, however, an LLC is automatically treated as a partnership for tax purposes, so most states have eliminated this "limited term" requirement in their state LLC Act. (Since you probably dealt with this requirement when you formed your LLC, we don't include it in Appendix B of this book, where we provide state laws on many ongoing LLC issues. You can find this information in Appendix A of Nolo's Form Your Own Limited Liability Company or by researching your state's laws yourself-see Section C, below.)
If your LLC articles do contain a provision that limits the term of your LLC, and you know your state no longer requires this limitation, you have two choices:
1. File an amendment to your articles that deletes the limitation of the term of your LLC-just retype your articles, omitting the provision that limits the term of your LLC-and file the amended articles with the state LLC filing office.
2. Do nothing for now. You can file the amendment to the articles later, just before the end of the term stated in your articles.
2. LLC Operating Agreement
The LLC operating agreement is an LLC's second most important document. The operating agreement does not need to be filed with the state-it is an internal document, much like corporate bylaws or a partnership agreement. It lists the capital, profits and voting interests of current members of the LLC. The operating agreement may specify the frequency of regular meetings of managers and members and the call, notice, quorum and voting rules for each type of meeting, or it may be silent on these issues, leaving these details to the LLC managers and members to decide later. Typically, state requirements for approving special matters are also included in the operating agreement, including any state-mandated manager and member voting requirements for admitting new members or for approving the sale of a membership interest by a current member to a new member.
State LLC voting rules are changing
As part of their LLC statutes, many states originally passed voting rules that required a majority or all LLC members to vote to approve the admission of a new member who was transferred a membership from a prior member. State rules also required a majority of all members to vote to continue the legal existence of the LLC after a member died, withdrew or otherwise gave up her membership interest. These rules were passed by states simply to help LLCs qualify for partnership classification with the IRS, and are no longer necessary (since LLCs are now automatically treated as partnerships for tax purposes by the IRS and most states). Most states have eliminated or are in the process of eliminating these unnecessary voting requirements, but operating agreements still may contain these rules. If yours does, you can keep these rules in your agreement and follow them when and if a member transfers an interest to a new member or when a member dies or departs the LLC-after all, it should not be difficult to get all members to approve the admission of a new member or the continuance of the LLC. If you can't obtain approval, chances are there is dissension in the ranks of your LLC's membership or management, which you will need to deal with before getting on with the business of your LLC.
If you haven't prepared an operating agreement
You may have formed your LLC in a hurry, by filing articles of organization as the only organizational formality. If so, you need to take the extra step of preparing a basic operating agreement for your LLC. Again, you can use Nolo's Form Your Own Limited Liability Company or LLC Maker to prepare your agreement.
3. Membership Certificates and Stubs
It is not legally necessary to issue membership certificates to members, but some LLC owners like this additional formality. Typically, there is no state-required format for such membership certificates, but most certificates show the name of the LLC, the name of the member and the date of issuance of the certificate. Certificates are signed by one or more LLC officers (the LLC president and secretary typically). A certificate normally does not show the exact capital, profits or voting interests of an member, but instead simply recites that the member is entitled to the rights and subject to the responsibilities of membership as set out in the articles of organization and operating agreement of the LLC. After the certificate is issued to a member, a certificate stub is filled out by the LLC secretary, showing the date of issuance and certificate number. The certificate stubs are kept in the LLC records binder. The stubs usually contain a transfer section that is completed when and if a member transfers his membership back to the LLC or to another person.
4. Membership Register
State law generally requires an LLC to keep an alphabetical list of the names and addresses of all current members, which can be inspected by any member during regular business hours of the LLC and which should be made available for inspection to all members at any membership meeting. This list is also used by the LLC secretary to prepare and mail notice of meetings to members. If the LLC is managed by specially selected managers, a list of the managers' names and addresses also should be maintained.
5. Membership Transfer Ledger
You should keep a record of the date and details of any transfers of membership in your LLC. Typically, a membership transfer ledger shows the name of the transferring member (the transferor), the date of the transfer of membership, and the name of the transferee (the person or entity to whom the membership is transferred). If a membership is redeemed (bought back) by the LLC itself, the transferee is the LLC.
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Excerpted from Your Limited Liability Company by Anthony Mancuso Copyright © 2002 by Anthony Mancuso
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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