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Law at the Speed of Business

Forming an LLC Checklist

Formation Matters

Select the Form of Entity

•       Review all different types of entities and their attributes (LLC, Partnership, Corporations).

•       Is an LLC the best choice of entity based on commercial, legal, and tax considerations?

•       Will the LLC be treated as a disregarded entity, partnership, or corporation for U.S. federal income tax purposes? Most single-member LLCs are treated as disregarded entities and most multiple-member LLCs are treated as partnerships.

 

Select the State of Formation

When selecting the state where the company will be formed, consider the following questions: 

•       Where will the principal place of business be located?

•       Will the LLC need to qualify to transact business in other states?

•       Are there specific tax matters to consider?

 

Choose a Company Name

•       Does the name satisfy statutory requirements in the state of formation?

•       Is the name available in the state of formation and any other states where the LLC may qualify to do business?

•       If not forming the LLC immediately, consider reserving the name so it is available when you are ready to form the entity.

•       Will the name be used as a domain name, trademark, or service mark? If so, consider running a separate search (such as a trademark search) to look for similar names in the marketplace.

 

Draft the Articles of Organization

•       Do the Articles of Organization satisfy statutory requirements in the state of formation? The formation document may have a different name depending on the state. In Colorado, it is called the articles of organization.

•       Who will sign the articles of organization as the authorized person(s)?

•       Has a registered agent been selected? There are service companies that will file the articles of organization and act as the registered agent for an additional annual fee. The address of the LLC’s will be where the registered agent is located.

•       Are there any other matters that should be included in the articles of organization? For example, will any limitations on the authority of members or managers be specified?

 

File the Articles of Organization with the Secretary of State

•       Will the certificate of formation be filed directly with the secretary of state or will a service company be used?

•       Is timing an issue?

•       Does the state of formation accept copies of signatures or is an original document required? For instance, Delaware and New York accept fax signatures.

•       How will filing and organizational fees be paid? Will the service company advance them (they typically do)?

 

Draft the LLC Operating Agreement

When preparing the Operating Agreement, consider the following: 

•       The rights of members.

•       Whether the LLC will have multiple classes of LLC interests.

•       Will the management of the LLC be by the members or by managers.

•       Initial capital contributions & additional capital contributions.

•       The allocation of profits, losses, and distributions.

•       The admission of new members and the transfer of LLC interests.

•       The dissolution and winding up of the LLC.

•       Will special provisions be required, such as: Buy/Sell, Indemnity, Drag Along, Tag Along, Incentive Compensation, etc.?

Initial Acts of the Members or Managers

•       Though not required by most states, some clients choose to pass initial resolutions of the members or managers of the LLC (similar to the corporate formation process). If you choose to do this, consider passing organizational acts such as:

•       applying for foreign qualification in other states;

•       adopting the fiscal year (LLCs usually operate on calendar years);

•       opening bank accounts and authorizing signatories; and

•       electing officers (LLCs can have officers similar to corporations), and electing a board of managers.

•       Are there any other specific actions or documents the members or managers should or need to approve (for example, are there any employment agreements to approve)?

•       Is the LLC being formed for a specific reason or as part of a transaction (such as a merger)? If so, there may be deal specific agreements and documents to approve.

 

Post-Formation Matters

Prepare the Minute Book

•       Though typically a corporate practice, LLCs should keep minute books as a matter of good governance and organization.

•       Are copies of all formation documents, member agreements, resolutions, and other organizational documents in the minute book?

•       Will the minute book be held by the law firm or the company?

 

Apply for an Employer Identification Number

•       Has the client applied for an Employer Identification Number (EIN) for the LLC?

 

Other Considerations

•       Are any state or county business licenses required in connection with the LLC’s business?

•       If the LLC will conduct business in other states, have all necessary foreign qualification forms been filed?

•       Will the LLC interests be evidenced by certificates (similar to stock certificates) or will the LLC interests be uncertificated?

•       If two or more parties are forming the LLC, were they advised of their rights to seek separate counsel in relation to their individual interests?

•       Has a ledger including the names of all members and managers been prepared?

 

David Kaplan