Ultimate LLC Compliance Guide. Michael Spadaccini
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• A statement that no owner action was required, if the managers were allowed by law to adopt the amendment without a vote by the members
• A statement that the percentage of votes in favor was sufficient for approval, if approval of the amendment by the members was required
Amendments to articles can also be made part of a reorganization plan. For example, articles of merger may indicate that the name of the surviving LLC shall be changed after the merger from “Aluminum and Bituminous Coal, LLC” to “TonoSilver, LLC.” This change would take effect on the date the articles of merger are filed.
In addition, if you are qualified to do business in more than one state, you will likely be required to amend your application for certificate of authority in each state where you are qualified every time you amend your articles.
The secretary of state’s office charges a fee for filing articles of amendment. Contact the office to learn the fee and any peculiar filing requirements in your state.
SHOULD YOU ORGANIZE BY YOURSELF OR HIRE AN ATTORNEY?
At this stage in your organization, you must decide whether you will file and organize your LLC on your own, hire a discount organization service, or hire an attorney. Each approach has its advantages and disadvantages.
Self-Organization
Obviously, the greatest benefit of self-organization is initial savings. Self-organization costs the least initially. LLCs are easier to form than corporations because they are generally simpler entities. You must analyze your own needs. How complex will your entity be? Will you require multiple classes of ownership interest? Do you expect to have more than a few members? Will you operate in an industry with a formidable degree of potential liability? If your needs are not complex, you are a good candidate for organizing your LLC yourself.
Of course, as with any legal matter, cutting costs can often cost more later. For example, if your LLC is not properly organized, ambitious creditors may later reach your personal assets by piercing the corporate (LLC) veil. See Part Five: LLC Lawsuits and Personal Liability Protection for more information on preserving your LLC’s full liability protection.
For further assistance with self-organization, Entrepreneur Press offers two helpful books: Forming an LLC: In Any State and Entrepreneur Magazine’s Ultimate Guide to Forming an LLC in Any State. These two books use a step-by-step approach to forming business entities.
Discount Organization Services
A slightly more expensive alternative is to hire a discount organization service. Such services, streamlined but competent, range from $200 to $300 per organization. Of course, such services are essentially filing services that do only the following:
• File articles of organization with the appropriate state office
• Select close LLC status
• Prepare boilerplate operating agreement
• Prepare boilerplate minutes of organizational meeting of managers
Such services generally do not include steps after filing the articles of organization, such as the following, which you must do on your own:
• Review and revise operating agreement, if necessary
• Review and revise minutes for organizational meeting of managers or members, if necessary
• Conduct organizational meeting of managers or members
• Ensure compliance with state securities laws
• File initial LLC reports with the secretary of state
• File periodic reports with the secretary of state
Discount organization services offer value. They can often navigate the bureaucratic complexities of state government and can provide prompt service and tested documents. However, the boilerplate operating agreement and proposed minutes of organizational meeting provided by discount incorporation services often contain fill-in-the-blank and optional provisions that can baffle an inexperienced organizer. On balance, you might find that you are better off organizing your entity on your own. You’ll save money and you’ll likely have an entity that more accurately suits your needs.
Hiring an Experienced Business Attorney
Finally, you may wish to hire a business attorney to organize your business for you. The general rule is that the bigger you are, the bigger your needs are. So, a simple LLC with one or two owners is fairly simple to set up on one’s own. However, when the number of participants rises, the complexity of the issues increases.
A qualified business attorney can do the following:
• Suggest alternatives and solutions that would not occur to even the most diligent layperson
• Anticipate problems before they arise
• Prepare operating agreement and minutes of the organizational meeting of managers or members according to your specific needs
• Ensure that no federal or state securities laws are violated when interests in the entity are sold to raise capital for the business
How can you find a qualified business attorney?
• Recommendations from friends and associates usually yield excellent matches between attorney and businessperson.
• Local bar associations in major metropolitan areas usually operate referral services. They screen attorneys, so you can be assured of the experience of any attorney you hire.
The rate for business attorneys ranges from $175 to $350 per hour. The lower end of the scale will apply outside of major metropolitan areas and for less experienced attorneys. Business attorneys often charge a flat fee for services such as forming LLCs. You can expect to pay between $500 and $2,000 for complete organization services.
FINAL THOUGHTS ON ARTICLES OF ORGANIZATION
Articles of organization are of critical importance. Once filed, your LLC springs into existence, at least in the eyes of the state. Your articles are a public document, available to anyone who might request a copy from the secretary of state or view them on the internet. At a minimum, the articles tell the public who you are and how you may be contacted, who the managers are and their addresses, the business in which the LLC will engage, and any restrictions that may be imposed upon the voting rights of managers and owners.
▼ Expert Tip
Don’t clutter your articles of organization with clauses that you can easily put in your operating agreement instead. Articles of organization require much more work to change than operating agreements because they require approval by the owners rather than only by the managers, require a filing with the state, and require a filing fee. The general rule: put clauses into your articles if you want them to be hard to change. For example, a clause dictating the number of managers of an LLC can appear either in the articles or in the operating agreement. But if you put that clause in your articles, you’ll be running back to the secretary of state every time you want to raise or lower the number of managers. If the clause is in your operating agreement, a simple managers’ resolution can effect the change.
Unlike operating agreements, which can often be amended by a vote of managers with no public declaration, most amendments to the articles of organization require approval by the owners according to procedures and requirements established in the statutes and the operating agreement and the filing of articles of amendment with the secretary of state.
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