Limited Liability Companies (LLCs) are a popular business entity with many entrepreneurs. Like corporations, LLCs offer valuable personal liability protection for their owners. Unlike corporations, however, LLCs aren’t required to adhere to the same burdensome record-keeping requirements and other corporate formalities corporations must follow.
That said, while the administrative requirements for an LLC are far less strict than for a corporation, you’ll still need to abide by some operational formalities if you want to maintain your personal liability protection. If you fail to adhere to such formalities, a court could remove the protective barrier shielding your personal assets, known as “piercing the veil,” leaving you personally liable to creditors in the event of a judgment.
While the formalities required for LLCs vary by state, implementing and adhering to the following best practices can help ensure you stay in compliance.
To make people aware that they’re dealing with an LLC and not an individual, all business should be conducted in the company’s name, including your chosen limited-liability abbreviation. This means using the company letterhead on all correspondence, identifying your company on websites and social media, naming the company as a party in all legal agreements and contracts, as well as making all financial transactions in the company’s name, not your own.
As soon as possible after filing your LLC formation documents, you should set up a bank account in the company’s name. This account should be used for any and all company transactions, from major purchase agreements to buying everyday office supplies. Payments to the company should always be made to the company account, not personal ones, and company funds should never be used for personal bills or purchases.
Commingling of personal and business assets is one of the main reasons courts remove an LLC’s liability protection. To this end, keeping your company’s finances separate from your own is of the utmost importance, and we can help you put in place financial systems that will make this a snap.
Though most states don’t legally require LLCs to have an operating agreement, it’s vital that you have one in place, even if you’re the sole owner. An operating agreement provides the essential legal guidelines and framework for how your company will be run, and it clearly establishes the business as a separate legal entity.
Among other functions, an operating agreement details how the ownership, responsibilities, and profits are divided among the LLC owners (known as members); establishes how the company will be managed; and outlines how the company is to be dissolved or sold. We can support you in creating and maintaining a robust operating agreement that suits the specific needs and circumstances of your particular business.
Nearly all states require LLCs to file regular reports—generally on an annual basis—with the state agency responsible for registering business organizations. Such reports keep the governing agency apprised of your company’s status, and are sometimes called a “Statement of Information.”
Each state has different rules on how often and when a report needs to be filed, what filing fees must be paid, and if other documents need to be filed with the report to address key changes to your LLC. We can help keep you up-to-date on your state’s latest reporting processes and requirements.
Although very few states legally require LLCs to hold member meetings and keep minutes, doing so is important for a number of reasons. Most importantly, holding regular meetings with accurate minutes provides strong evidence that your LLC is serious about observing administrative formalities. Combined with your operating agreement, regular reports to the state, and diligent separation of personal and business finances, such meetings offer extra protection if creditors ever seek to pierce your corporate veil.
Outside of protecting your personal liability, holding regular meetings and keeping detailed minutes just makes good business sense, especially for multi-member LLCs. Holding regular meetings facilitates consensus among members when making major decisions, keeps members informed on business actions, and provides a forum to plan for your organization’s future.
Meeting minutes also provide a clear record of member discussions, votes, and decisions, which can help reduce member disputes and conflict. In addition, minutes offer solid documentation of the LLC’s internal operations should the courts or IRS ever request such records.
We can help ensure that your LLC stays in full compliance with all of your state’s administrative formalities, including holding meetings and keeping minutes. In fact, we offer specially designed maintenance packages to help ensure your LLC meets these requirements and maintains the maximum level of protection for your personal assets.
Beyond these administrative responsibilities, there are numerous other legal, financial, and tax issues involved with setting up and maintaining your LLC. Consult with us to be certain you have the proper systems in place to keep your company’s operations firing on all cylinders. Contact us today to learn more.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.