Limited Liability Company
A limited liability company is also known as an “LLC”. LLCs are currently the most popular type of business entity to form, largely due to the flexibility and legal protections they offer the owners (who are also called “members”). Below are the 10 most typical events in a limited liability company’s life cycle – we can and do help clients with all of these by providing various LLC Lawyer services. Before we get into those, let us share one universal truth: it is far less expensive to set things up the right way “now” than it is to later deal with the consequences of not having done so.
Preliminary Efforts and Official Formation of the Limited Liability Company
The persons intending to form the business begin preliminary efforts. The company is formed (also referred to as “registered”) via the Secretary of State / Division of Corporations (different states have slightly different names for this State agency). The company must have a “registered agent”, whether this law firm or someone else.
LLC Operating Agreement
The operating agreement is typically the most important internal LLC document, and controls the company’s ownership and management, among other things. It is crucial to have a well-drafted, written operating agreement which sets forth the way that you want your company to run. Who gets to make what choices? Who owns what? Can a member/owner transfer that ownership to anyone the owner chooses? What happens if an owner wants out of the business? How is the money divided?
Third Party Contracts and Agreements
The company will almost always enter into contracts and agreements, whether related to employment, services, products, non-disclosure / confidentiality issues, or any other of the many aspects of running a business and – hopefully – accomplishing the LLC’s goals. Lack of a clear and enforceable written contract has been the downfall of many businesses.
Every business makes day-to-day operations decisions, but also sometimes has to make judgment calls which can forever impact the company. The operating agreement helps set forth who makes these decisions and how they are made.
Sales and/or Purchases of Assets
Whether your company ends up purchasing assets (real estate, equipment, another business, etc.) or selling assets, these transactions are a normal part of doing business. Negotiating the best deal and protecting that deal require careful consideration and analysis, attention to detail, and the motivation to get it all done.
External Expansion and Growth, Perhaps Including into other States
Hard work, proper planning, and a little bit of luck can result in expansion and growth for your LLC. That hard work and proper planning needs to be part of the expansion efforts as well. If you want to conduct business in another state, you will need to be careful to follow the laws that apply to being able to do so, as well as remain in “good standing” in your home state.
Internal Expansion and Growth
When business goes well, it almost always comes along with a need to add employees and/or independent contractors, and sometimes requires bringing in new members of the company’s management team. Sometimes bringing in new owners, or members, is also necessary for manpower, experience or capital. In addition to the tax issues that you have to consider, among the other issues you’ll want to be mindful of are employment contracts, confidentiality agreements, and whether your employees will be subject to non-compete agreements. In the case of adding new members, you will need to revise the LLC operating agreement and perhaps other legal and business and tax documents and filings. Additionally, raising capital to expand, whether it be through the addition of partners, the taking out of loans, or investment offerings to friends, family or the general public can result in a multitude of legal risks and hurdles, including Federal and State securities laws – these capital-raising activities should never be done without sound legal advice.
Unfortunately, it’s not uncommon for a company to at some point undergo internal disputes which are significant enough to interfere with the efficient running of the business. Having a proper operating agreement and other formal documentation can control who has what rights, how such disputes are resolved, and what process can be utilized to get past the dispute and focus on business again. A “business divorce” can be every bit as nasty as a personal/marital divorce, and contracts (including but not limited to an operating agreement) which govern disputes can greatly decrease the uncertainty and cost of resolving such disputes.
Regardless of how careful, honorable, and successful a company is, if you are in business long enough, you’ll have a dispute with someone else. Whether that dispute is a bump in the road which is fairly easily resolved or a huge drain on your resources, money, and sanity can depend on whether you set things up properly, such as having written contracts, disclaimers, terms of service, etc. If someone accuses you of failing in your job, wouldn’t it be wonderful if you had a signed written contract that said “That’s not part of our duties”?
Dissolving and Winding Up
All things come to an end – let your company’s end be a good one. The law requires certain procedures to be followed and certain actions to be taken for an LLC to end its existence; failure to follow the law in this regard can result in the owners ending up with personal liability related to what were company matters.