Do I Need an Attorney?

www.LLCWEB.com

DO I NEED AN ATTORNEY TO FORM AN LLC?

The actual paperwork involved in forming a limited liability company is quite simple. Most states only require filing of a single page form (usually called Articles of Organization) with the secretary of state. You pay a filing fee that varies from state to state and that's it. As far as ongoing paperwork, most states require an annual statement be filed which is another one page simple form that updates the state as to basic information. A filing fee is required for this also. Where the situation gets tricky is in the drafting of the Operating Agreement. This is the agreement between the owners as to how the company will be run. It covers many different areas of operation including management, distribution of profits and losses, special allocations, termination, admission of new members etc. Without the agreement the state's default rules will apply which may not have been what you would have chosen given the opportunity. The beauty of the LLC legislation in most states is that it follows the doctrine of "freedom of contract". This allows the member/s of an LLC to agree to form and run the company any way that they want to (as long as it is legal) and their agreements will be upheld in court.

The problem with this "freedom of contract" concept is that it can be too flexible and allow the drafter to inadvertently create a corporation rather than the limited liability company that was intended. This can potentially create a conflict between state and federal law. The IRS has resolved the taxation problem that previously existed by allowing the LLC to select whether to be taxed as a partnership or corporation (called "Check the Box") but there still remain state taxes and laws that apply or not depending upon what entity is involved.

In order for the LLC to avoid being treated as a corporation it must comply with some fairly complicated guidelines. To complicate things even more the guidelines are flexible; allowing the organizers to choose which corporate characteristics they want and which ones they can live without. Of the four corporate characteristics, as long as the LLC has only two of them, everything is OK. If it has three then the LLC is too much like a corporation and will be treated as one. Understanding these corporate characteristics and how to put them into the Operating Agreement can get pretty complicated.

Some of the states require a written operating agreement and some do not. Given the entity classification issue outlined above and the default rules that will run your company without one, it is virtually mandatory to have a properly drafted one. Bottom line - You will probably need help and some legal and tax advice.

IS THERE AN ALTERNATIVE? IS IT AFFORDABLE?

THE ANSWER IS YES!

ORDER AND DOWNLOAD THE LLC KIT NOW!

Main Navigation