Ultimate LLC Compliance Guide. Michael Spadaccini
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Failure to provide for preemptive rights or cumulative voting in your articles will mean that your LLC won’t have such rights in certain states or will have them in others. It’s important to know your state law before you file your articles.
▼ Expert Tip
When filing your articles of organization, take the time to verify the accuracy of the information. It is expensive and somewhat embarrassing to be required to run around and amend your articles because you omitted information or provided information that was incorrect.
For your review, two sample forms of articles of organization follow this chapter. The samples, short form and long form, demonstrate the types of provisions that are required or considered optional in the articles. It would be rare indeed to find a set of articles filed recently that contain all the sample provisions. Work with your business lawyer to develop articles that best fit your needs.
Sample Articles of Organization, Short Form
The following sample articles are as brief as articles can be. They cover only the bare minimum—the name of the LLC, the business purpose, and the resident agent. These articles are offered for illustration; you should use a state-specific form to organize your LLC.
ARTICLES OF ORGANIZATION OF [LLC NAME]
1. The name of this Limited Liability Company is [LLC NAME].
2. The purpose of the LLC is to engage in any lawful act or activity for which an LLC may be organized.
3. The name and address in the State of [STATE] of this LLC’s initial agent for service of process are [NAME AND ADDRESS].
Dated: __________________
____________________________
Donald Leland
Organizer
Sample Articles of Organization, Delaware Long Form with Optional Provisions
The following sample articles are long-form articles suitable for use in Delaware. Note that in Delaware articles of organization are called a certificate of formation, but the meaning is exactly the same. The articles contain the required provisions: the name of the LLC, the purpose, and the resident agent. The articles also contain the following optional provisions. Note that these articles favor the managers rather than the members:
• Multiple classes of membership, with a regular voting class and a preferred nonvoting class with a dividend preference and a liquidation preference (Article Four).
• A statement of perpetual existence (Article Five).
• A statement that the number of managers shall be determined by the operating agreement (Article Six).
• A statement that the managers have the power to amend the operating agreement (Article Seven).
• Strong indemnity provisions for managers and members (Article Eight).
• A provision allowing managers to appoint managers to fill vacancies; the alternative would be to require a vote by the members (Article Nine).
• A provision stating that notifications to owners shall be governed by the operating agreement. This provision is noteworthy: it gives the managers the power to notice owners in a manner different from the Delaware act. So, for example, the managers could shorten the time required for delivery of notice to owners of an upcoming vote if the operating agreement so provides (Article Ten).
• A provision specifically limiting the members’ rights regarding amendment to the articles to the absolute minimum rights conferred by state law (Article Eleven).
CERTIFICATE OF FORMATION OF TONOSILVER RESOURCES, LLC
ARTICLE ONE. The name of this LLC is TONOSILVER RESOURCES, LLC (the “LLC”).
ARTICLE TWO. The address of the LLC’s registered office in the State of Delaware is 874 Walker Road, Suite C, City of Dover, Zip Code: 19904, County of Kent, and the name of its registered agent is United Corporate Services, Inc.
ARTICLE THREE. The nature of the business or purposes to be conducted or promoted by the LLC is to engage in any lawful act or activity for which LLCs may be organized under the Limited Liability Company Act of Delaware.
ARTICLE FOUR. This LLC is authorized to issue two classes of ownership interest: Class A Voting Membership and Class B Preferred Non-Voting Membership.
The Class A Voting Membership shall be the sole voting membership interest of the LLC.
The Class B Preferred Non-Voting Membership shall not vote upon any matter brought before the Class A Voting Membership. The Class B Preferred Non-Voting Membership has a liquidation preference. Upon the liquidation or dissolution of the LLC, holders of the Class B Preferred Non-Voting Membership are entitled to receive out of the assets available for distribution to owners, before any payment to the holders of the Class A Voting Membership, the sum of $___ for each percentage of interest of the total outstanding Class B Preferred Non-Voting Membership. If the assets of the LLC are insufficient to pay this liquidation preference to the holders of the Class B Preferred Non-Voting Membership, all of the entire remaining assets shall be paid to holders of the Class B Preferred NonVoting Membership and holders of the Class A Voting Membership. After the liquidation preference has been paid or set apart for holders of the Class B Preferred Non-Voting Membership, the remaining assets shall be paid to holders of the Common Stock.
The Class B Preferred Non-Voting Membership has a dividend preference. Holders of the Class B Preferred Non-Voting Membership are entitled to receive dividends on a noncumulative basis at the rate of $___ for each percentage of interest of the total outstanding Class B Preferred Non-Voting Membership, as and when declared by the managers of the LLC from funds legally available for dividends and distributions. The holders of the Class A Voting Membership may not receive dividends or other distributions during any fiscal year of the LLC until dividends on the Class B Preferred NonVoting Membership in the total amount of $___ for each aggregate percentage of interest of the total outstanding Class B Preferred Non-Voting Membership during that fiscal year have been declared and paid or set apart for payment. The payment of such dividends is discretionary, and the holders of the Class B Preferred Non-Voting Membership shall not enjoy a right to dividends if such dividends are not declared, even if the LLC has sufficient funds to lawfully pay such dividends.
ARTICLE FIVE. The LLC is to have perpetual existence.
ARTICLE SIX. The LLC shall be managed by a board of managers. The number of managers that constitute the whole board of managers of the LLC and the manner of their election shall be designated in the Operating Agreement of the LLC.
ARTICLE SEVEN. In furtherance and not in limitation of the powers conferred by statute, the board of managers is expressly authorized to make, alter, amend, or repeal the Operating Agreement of the LLC.
ARTICLE EIGHT.
(a) To the fullest extent allowed by the Delaware Limited Liability Company Act, a member or manager or other person shall not be liable to the LLC or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement for breach of fiduciary duty for the member’s or manager’s or other person’s good faith reliance on the provisions of the LLC Operating Agreement.
(b) To the fullest extent allowed by the Delaware Limited Liability Company Act, the LLC Operating Agreement shall provide for the limitation or elimination of any and all liabilities for breach of contract and breach of duties (including fiduciary duties) of a member, manager, or other person to the LLC or to another member or manager or to another person that is a party to or is otherwise bound by the LLC Operating Agreement, provided that the Operating Agreement may not limit or eliminate liability for any act or omission that