f.r.c. on Finances

2006-12-16T22:53:00.000-08:00

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Advantages of a Limited Liability Company

2006-03-07T08:30:00.000-08:00

A Limited Liability Company has the advantage of being a hybrid between a partnership and a Corporation. The advantage of a Limited Liability Company is that most states require fewer formalities be observed in an LLC in comparison to a corporation. Advantage: One LLC Member Required. Historically, most states require that a Limited Liability Company be comprised of at least two LLC members. Today most states and the IRS recognize the single-member LLC as a legitimate business structure.Separate Legal Entity Like limited partnerships and corporations, the Limited Liability Company shares a similar advantage -- it is recognized as a separate legal entity from its "members."Limited Liability Ordinarily, only the LLC is responsible for the company's debts thus shielding the members from individual liability. However, there are some exceptions where individual members may be held liable:

Guarantor Liability: Where an LLC member has personally guaranteed the obligations of the LLC, he or she will be liable. For example, where an LLC is relatively new and has no credit history, a prospective landlord about to lease office space to the LLC will most likely require a personal guarantee from the LLC members before executing such a lease.

Alter Ego Liability: Very similar to the judicial doctrine applied to corporations where a court may hold the individual shareholders liable where the business entity is merely the "Alter Ego" of its shareholders, a member of an LLC may also be held liable for the LLCs debts if the court imposes its "alter ego liability" doctrine.Please note, however, that although a corporation's failure to hold shareholder or director meetings may subject the corporation to alter ego liability, this is not the case for LLCs in California. An LLC's failure to hold meetings of members or managers is not usually considered grounds for imposing the alter ego doctrine where the LLCs Articles of Organization or Operating Agreement do not expressly require such meetings.

LLC Management and Control Management and control of an LLC is vested with its members unless the Limited Liability Company's articles of organization provide otherwise.Voting Interest Ordinarily, voting interest in an LLC directly corresponds to interest in profits, unless the articles of organization or operating agreement provide otherwiseTransferability No one can become a member of an LLC (either by transfer of an existing membership or the issuance of a new one) without the consent of members having a majority in interest (excluding the person acquiring the membership interest) unless the articles of organization provide otherwise.Duration An LLC does not have a reliable continuity of existence. The articles of organization must specify the date on which the Limited Liability Company's existence will terminate. Unless otherwise provided in the articles of organization or a written operating agreement, an LLC is dissolved at the death, withdrawal, resignation, expulsion, or bankruptcy of a member (unless within 90 days a majority in both the profits and capital interests vote to continue the LLC)Advantage: Formalities. The existence of an LLC begins upon the filing of the Articles of Organization with the Secretary of State. The articles must be on the form prescribed by the Secretary of State. Among the required information on the form is the latest date at which the LLC is to dissolve and a statement as to whether the LLC will be managed by one manager, more than one manager, or the members.To validly complete the formation of the LLC, members must enter into an Operating Agreement. This Operating Agreement may come into existence either before or after the filing of the Articles of Organization and may be either oral or in writing.

How to Incorporate a Business

2006-03-07T07:01:00.000-08:00

How to Incorporate a Business
Whether you have a small mom-and-pop establishment or a multinational company, the steps to incorporating are similar. (image placeholder)Steps: 1. Determine if you want out-of-state, in-state or foreign incorporation. Most small and medium-sized businesses incorporate in the state where the majority of their business is conducted. 2. Enter into a pre-incorporation agreement with the co-founders of the business, establishing who will serve on the first board of directors, who will buy stock, how many shares and at what price. 3. File an application for registration of the name under which you wish to incorporate. Contact the Secretary of State's office to obtain the forms. After you file, the office will let you know if the name has been taken. 4. Prepare articles of incorporation for your business, following instructions from the Secretary of State's office. The office will send you a certificate of incorporation, which will include the name of the company, the purpose for which it is being formed, the location of the company and other basic information. 5. Sign the certificate. The number of legally qualified individuals required to sign varies from state to state. 6. Hold a stockholders' meeting after you receive your corporate charter from the state. 7. Adopt corporate bylaws and elect the board of directors at the meeting. Send an agenda to shareholders before the meeting to let them know what issues (and board candidates) they will be voting on. Once the board is formally elected, any documents created in connection with the pre-incorporation agreement need to be adopted. (image placeholder)Tips: (image placeholder)Contact an attorney for help conducting the stockholders' meeting or drawing up the certificate of incorporation. (image placeholder)An attorney or other person may act as a 'dummy' incorporator to help draw up the certificate of incorporation, then resign at the stockholders' meeting. (image placeholder)Use broad but clear language to describe the scope of the proposed corporation to give yourself the greatest possible latitude for future expansion. (image placeholder)You must have an office in the state in which you are forming your corporation.

2006-02-22T09:15:00.000-08:00

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