The laws of each state and the District of Columbia have the ultimate authority to govern all limited liability companies created within its jurisdiction. States commonly refer to LLCs created within the jurisdiction as domestic LLCs, and entities created outside of the state as foreign LLCs. This distinction has no applicability to international business entities created outside of the United States.
Certificate of Organization
To become a domestic LLC of a jurisdiction, you must provide the jurisdiction with a certificate of organization. The business becomes a legal domestic LLC when the state officially files the certificate. A valid certificate must minimally include the name of the business, the principal office address and the name and address of the agent who has authority to accept legal documents on behalf of the LLC. Commonly, the jurisdiction’s secretary of state office will provide you with access to a database of available business names. You may not register a business name if another legal entity within the state already uses it.
Becoming a Member
Most states will not file the certificate of organization if no member of the LLC exists within 90 days of its delivery to the state office. The co-owners may designate the individuals who are members on the initial certificate of organization. After delivery of the certificate, new members may join by unanimous consent of all current owners or by any other method the operating agreement of the LLC allows. Unless the operating agreement states otherwise, there is no requirement that a prospective member make a monetary or property contribution to the LLC as a prerequisite to becoming a member.
Each jurisdiction provides the minimum standard of fiduciary duties members owe the domestic LLC. Commonly, members have an unconditional duty of loyalty to the LLC. This requires that the member always put the interests of the business before their own when conducting business. A member who violates this duty is personally liable for any damage the LLC suffers and for profits the member usurps when using the LLC for personal gain. Members also have an unconditional duty to refrain from acting in a grossly negligent manner. For example, a member who drives a business vehicle after consuming an excess amount of alcoholic beverages is grossly negligent and is personally liable for any accident that ensues.
A foreign LLC may conduct business in any jurisdiction, regardless of the state of formation. However, foreign LLCs must provide each jurisdiction it does business in with a certificate of authority before it can receive the same legal protection as domestic LLCs. Failure to submit the certificate precludes the LLC from utilizing the courts of that state to resolve business disputes with third parties having a connection to that jurisdiction. Restricting access to courts inhibits the LLC from mitigating business risk. In some instances, a prospective defendant of the LLC may have no obligation to appear before another state’s courts.
- University of Pennsylvania Law School: Revised Uniform Limited Liability Company Act 2006
- “Wiley CPA Exam Review Volume 1”; O. Ray Whittington, Ph.D.; 2010