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Your Limited Liability Company

An Operating Manual

Publication Date July 2007
Edition 5
ISBN 9781413306514
Pages 512 pp
Forms 81 forms
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Description

The step-by-step guide to running your LLC!

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:

  • prepare minutes of meetings
  • record important legal, tax and business decisions
  • handle formal recordkeeping
  • fill out an LLC Records Book

Your Limited Liability Company provides all the documentation you'll need, including:

  • minutes
  • written consents
  • checklists
  • over 50 ready-to-use resolutions

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.

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
  • Minutes of LLC 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

Table of Contents

Your LLC Companion

1. 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. Adjourn 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 Signed Consent 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

    • Minutes of LLC Meeting
    • 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: Special 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: Special 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

Sample Content

  • Introduction: Introduction

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.

Why You Should Record Key LLC Decisions

If you don't take 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 Book

Although 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.

  • If you decide to hold a real meeting of your managers and/or members, follow the steps covered in Chapters 3 and 4 to prepare for and hold the meeting. Then prepare the appropriate minutes form to document the decisions taken at the meeting, following the step-by-step instructions in Chapter 5.
  • If you opt for a "paper" meeting -- one that occurs on paper only but reflects the real decisions of your managers and members -- follow the instructions for creating minutes for a paper meeting in Chapter 6.
  • To document a particular decision by preparing written consent forms to be signed by the managers and/or members, follow the instructions in Chapter 7.
  • If a business deal or transaction should be approved -- and is covered by -- a resolution included in this book (Chapters 8 through 15), fill in the resolution form following the instructions contained in the appropriate chapter, then place or paste the completed resolution into your minutes or consent form. (See the beginning of Appendix C for a list of resolution forms included with this book, with a cross-reference to the chapter and section of the book that contains instructions for preparing each resolution.)

When To Consult A Professional

Small, privately held LLCs routinely hold LLC meetings and prepare standard resolutions and other legal paperwork. However, you may occasionally face a more complicated decision that has important legal, tax, or financial ramifications -- and in this situation, you should get some professional advice.

Please see a tax or legal specialist before using the forms in this book if:

  • the decision you are facing is complex
  • you anticipate any complications or objections, or
  • you simply have questions and need more information.

A consultation of this sort will be far more cost-effective than making the wrong decision and having to fix it later. For information on choosing and using a legal or tax professional, see Chapter 16.

Legal Updates

Here are summaries of important legal or procedural changes that affect the latest edition of this product.

Whats New in the 5th Edition of Your Limited Liability Company

Overview of What''s New

There are no broad legal changes affecting limited liability companies since the last edition of Your Limited Liability Company. However, the new edition contains many small changes throughout, including a thoroughly updated Appendix B containing state-by state information about LLC filing offices, state laws regarding LLCs, and rules for continuing an LLC after a member leaves the business.

Who Needs the New Edition?

You Need the New Edition If:

you are looking for the most up-to-date information on operating an LLC, including updated information on state filing offices, state laws, and LLC rules.

Chapters Most Affected

The book has been updated throughout.

Forms That Have Changed

Single-owner LLCs With Employees Must Obtain a Federal Employer Identification Number