An LLC, or limited liability corporation, for investments is an important step for all investors. LLCs provide four important consolidations: clarity of ownership, liability of risk is moved from the individual to the corporation, overriding of various state rules governing investments in favor of a national law, and a means to transfer ownership within the company through the buying and selling of shares. LLCs may be set up with legal assistance or in a simplified form using Internet resources.
Define who will own shares in the LLC and for what price. Know that each share represents a proportionate interest in the gains and losses of the company. Codify the rules and regulations in the operating agreement of the LLC. Use the operating agreement to prevent financial and management misunderstandings, and to make certain that your business is governed by agreed-upon rules and not the default rules of your state of incorporation.
Use the limited liability structure to protect your personal assets. This is particularly crucial if the investment, such as a building or other real estate investment, involves debt. Use an LLC even if you are a one-person LLC to avoid the appearance of a sole proprietorship and the possibility of personal risk.
Define the management structure and responsibilities of each member of the LLC. Use the operating agreement to define how and when partners may add additional investments into the LLC. Decide how partners must withdraw money and what steps must be followed to leave the LLC altogether.
List steps necessary to call meetings. Arrange by-laws that give members a step-by-step procedure for calling elections. Review all documentation so that it specifically exempts the LLC from onerous state rules that might apply.
Consult a lawyer or legal expert to customize the LLC agreement and to address any particular concerns that may arise. Make certain all members understand the agreement. Sign and date the agreement with proper witnesses and a corporate seal. Maintain meeting minutes and proper records.
Create your own LLC online. Reduce costs with an online LLC, and perhaps give up the need for professional review. Use an online LLC for one-person companies in order to clearly separate business activities from the possibly unlimited legal liability attached to a sole proprietorship.
- Use a lawyer to draw up the LLC unless you have substantial knowledge as to what you want to accomplish.
- Explore the differences between sole proprietorship, a corporation and an LLC before choosing a corporate form.