illuminating LAW SHOULD YOU FORM AN LLC S By Fred

illuminating LAW SHOULD YOU FORM AN LLC? S By Fred S. Steingold ole proprietorship, partnership, corporation, and limited liability company (LLC): These are the four main ways that businesses are set up, but there are major differences between them. With a sole proprietorship, the owner is fully liable for all business debts. The same is true for everyone named in a partnership. That’s why many choose to operate as a corporation or LLC. Either of these two entities will limit your personal liability. Most owners prefer having an LLC because it is usually simpler and less expensive to create, plus allows greater flexibility. If you currently act as a corporation, there’s no need to switch; however, if your business is a sole proprietorship or partnership, ask your lawyer if forming an LLC makes sense for you. The Language An LLC uses a different vocabulary than a corporation. For example, an owner of an LLC is called a “member” rather than a “shareholder.” A member has a “membership interest” instead of “shares of stock.” An LLC is created through “articles of organization” (or, in some states, “articles of formation” or “certificate of formation”) and not “articles of incorporation.” Finally, an LLC has an “operating agreement” in place of “bylaws.” The Paperwork In most states, preparing your articles of organization is straightforward. You just fill in the blanks on a printed form, sign, and send it to the filing office. You may even be able to complete the process online. If your state doesn’t provide the actual form, it may provide a sample. Typically, your articles of organization won’t need to include anything more than the following information: • name of your LLC • name and address of your LLC’s initial registered agent – usually one of the members • statement of purpose • type of management • signatures of people forming the LLC Once you’ve filed with the state, you’re officially in business; however, if your LLC has more than one member, you’ll need an operating agreement. (A one-person LLC can usually omit this.) This document sets the rules for how the owners will run the business. 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Your inquiries will receive our prompt attention, and shipments are made expeditiously from stock. 45 West 25 Street New York, NY 10010 Tel: 212-243-2400 Fax: 212-627-9591 www.igmor.com • e-mail: igmorcryst@aol.com igmor@aol.com 144/November 2008 HOME LIGHTING & ACCESSORIES illuminating LAW sibilities. Here are some typical topics covered: • How much capital will each member contribute? • What will be the size of a member’s interest? (For example, typically, someone who contributes 25 percent of the company’s capital will have a 25-percent membership interest) • What matters need to be voted on? • What size majority does an action require? • How are profits and losses allocated? • How is money distributed to the members? • How are new members added? • What happens if a member dies, moves away, gets sick, or simply wants to leave the business? Unlike a corporation, you don’t need a board of directors for your LLC, but you can provide for one if that’s what the members want. Similarly, you don’t need company officers, but it’s okay to have them. The operating agreement is a private document that is not filed with any state agency. Spend time on writing your operating agreement in order to head off problems down the road. The Final Step Set up a bank account in the LLC’s name and get an employer identification number (EIN) from the IRS. You can skip this last step if you have a one-member LLC and have no employees. If your one-member LLC plans on having employees eventually, getting an EIN is optional. Make sure you treat your business as an entity separate from yourself to prevent being burdened with unlimited personal liability. To maintain separation, put LLC income into the coordinating bank account and pay only business bills from that account. If the LLC leases a building from you, sign a lease, just as you would with any other tenant. If you loan money to the LLC, have it give you a promissory note as legal evidence. Always sign business documents as member, manager, or officer of your LLC and not as an individual. Lastly, try to avoid signing as a guarantor of business loans or other LLC obligations. Fred S. Steingold practices law in Ann Arbor, Michigan. He is the author of Legal Guide for Starting and Running a Small Business and The Employer’s Legal Handbook published by Nolo. Legal strategies may vary depending on the state in which you live and the specifics of your situation. See your lawyer for legal advice. Explore our extensive line of fine lamp crystals from around the world! You can also look to us for chandelier hardware, candle covers, candle sockets and bulk lamp cord ... B&P Lamp Supply has everything you need in one convenient catalog. Call for your catalog now! F R E E email: sales@bplampsupply.com web: www.bplampsupply.com 843 Old Morrison Highway McMinnville, TN 37110 Phone: 1-800-822-3450 Fax: 1-800-822-5267 146/November 2008 HOME LIGHTING & ACCESSORIES