By: Trevor Crow

www.biztaxbuzz.com

Documents Necessary when Forming

an LLC

Overview

It’s no secret that limited liability companies (LLCs) are a

very popular form of entity.

I’ve noticed, however, that many people misunderstand the

documents necessary when forming an LLC. So, what

documents are necessary?

Well, the lawyer answer is of course that it depends on the

purpose of the entity and whether it is going to be a Single-

Member LLC or a Multi- Member LLC.

Overview One document is absolutely necessary: Articles of

Organization. Colorado (and I believe all other states) requires a business to file Articles of Organization with the Secretary of State to form an LLC.

However, this is usually a bare bones document that provides for the name of the LLC, principal business address, name and address of the registered agent, whether the LLC is manager- managed or member- managed, and the name of the person causing the articles of organization to be filed with the secretary of state.

Besides the Articles of Organization, the other documents that an LLC should have will vary.

Overview

This post provides a few general ideas about documents that

you may need when forming either a Single Member LLC or

a Multi- Member LLC.

Single Member LLCs

Initially, as mentioned above, a single member LLC

(“SMLLC”) will need to file articles of organization to create

the entity under state law.

Many attorneys will recommend that the Articles of

Organization is the only document that the SMLLC needs.

If a SMLLC is on a shoestring budget, then I think just the

Articles of Organization will work, provided the company

follows business formalities, such as having a business bank

account and keeping business assets and liabilities separate

from personal assets and liabilities.

Single Member LLCs

To make the importance of following business formalities

more real for the business owner, I typically recommend that

the SMLLC have an operating agreement that addresses

governance policies, succession, death and disability.

By following the written policies in an operating agreement,

I believe the business owner will have a better argument that

the liability protections available to LLCs should be upheld if

challenged in court.

Multi-Member LLCs

When an LLC has more than one member, it is essential to

have a written operating agreement to memorialize the

agreement between the parties.

The operating agreement should address the rules and

policies that govern the entity, including topics such as

management/decision making, voting rights, distributions,

allocations, employment, sale of interests, tax issues,

liquidation, dispute resolution, death and disability and many

others.

Multi-Member LLCs

An operating agreement may be sufficient for most LLCs.

However, the members of an LLC may also want any or all of

the following agreements:

Buy- Sell Agreement – the purpose of a buy- sell agreement

is to ensure continuity of ownership and prevent unwanted

parties from becoming owners.

Non- Compete Agreement – this agreement prohibits the

owners from leaving and starting a competing business for a

period of time that must be reasonable in time and

geographic scope.

Multi-Member LLCs Confidentiality Agreement – this agreement may be incorporated

in the operating agreement or in a separate agreement. It basically

states that all of the company’s proprietary information, such as

customer lists etc. will be kept confidential.

Intellectual Property Agreement – if the company has important

intellectual property to protect, it should have agreements with

employees and contractors that make it clear that the company

owns any IP created for or used in the business.

Employment Contracts – as the company grows and gets more

employees and management personnel it may need agreements

governing the terms of their employment.

Bottom Line

The documents necessary when forming an LLC will vary

depending on the LLC’s business and these documents

become more important and greater in number if it’s a

Multi- Member LLC.