Attorney Anthony Mancuso, author of Your Limited Liability Company: An Operating Manual 7 th Edition “ In typical straightforward Nolo fashion, this book explains everything from choosing a name to maintaining the LLC’s legal and tax status.” ORANGE COUNTY REGISTER • Create an LLC in any state • Protect your personal assets • Get tax benefi ts Limited Liability Company Form Your Own Free Legal Updates at Nolo.com e Nolo Story Dear friends, Founded in 1971, and based in an old clock factory in Berkeley, California, Nolo has always strived to off er clear legal information and solutions. Today we are proud to off er a full range of plain-English law books, legal forms, software and an award-winning website. Everything we publish is relentlessly researched and tested by a dedicated group of in-house legal editors, whotogether have more than 150 years’ experience. And when legal changes occur after publication, we promptly post free updates at Nolo.com. 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Form your own limited liability company / by Anthony Mancuso. — 7th ed. p. cm. Includes index. Summary: “Step-by-step instructions and all the forms needed to create a limited liability corporation (LLC) in any state. It covers basic LLC legalities and taxation. e 7th edition includes the most recent changes in LLC law and related tax law”—Provided by publisher. ISBN 978-1-4133-1624-7 (pbk.) — ISBN 978-1-4133-1654-4 (epub e-book) 1. Limited partnership—United States—Popular works. 2. Private companies—United States— Popular works. I. Title. KF1380.M36 2011 346.73’0668—dc22 2011017137 Copyright © 1996–2011 by Anthony Mancuso. All rights reserved. e NOLO trademark is registered in the U.S. Patent and Trademark Offi ce. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission. Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. Call 800-955-4775 or write to Nolo, 950 Parker Street, Berkeley, California 94710. Please note We believe accurate, plain-English legal information should help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea—consult an attorney licensed to practice in your state. Acknowledgments e author thanks Marcia Stewart for editing and organizing the material for this edition. A special thanks to the entire Nolo crew for producing and publishing this book. About the Author Anthony Mancuso is a corporations and limited liability company expert. A graduate of Hastings College of Law in San Francisco, Tony is an active member of the California State Bar, writes books and software in the fields of corporate and LLC law, and has studied advanced business taxation at Golden Gate University in San Francisco. He also has been a consultant for Silicon Valley EDA (Electronic Design Automation) and other technology companies. He is currently employed at Google in Mountain View. Tony is the author of many Nolo books on forming and operating corporations (profit and nonprofit) and limited liability companies. Among his current books are Incorporate Your Business; e Corporate Records Handbook; How to Form a Nonprofit Corporation; Nonprofit Meetings, Minutes & Records; LLC or Corporation? and Your Limited Liability Company: An Operating Manual. His books have shown over a quarter of a million businesses and organizations how to form and operate a corporation or LLC. Tony has lectured at Boalt School of Law on the U.C. Berkeley campus (Using the Law in Non-Traditional Settings) and at Stanford Law School (How to Form a Nonprofit Corporation). He taught Saturday Morning Law School business formation and operation courses for several years at Nolo’s offices in Berkeley. He has also scripted and narrated several audiotapes and podcasts covering LLCs and corporate formations and other legal areas for Nolo as well as for e Company Corporation. He writes articles for and hosts the Nolo blog, LLC and Corporation Small Talk (www.llccorporationblog.com). He has given many recorded and live radio and TV presentations and interviews covering business, securities, and tax law issues. His law and tax articles and interviews have appeared in the Wall Street Journal and eStreet.Com. Tony is a licensed helicopter pilot and has performed for years as a guitarist in various musical idioms, including jazz, Afro-Cuban, and R&B. To access Tony’s LLC and corporation blogs and podcasts, plus links to his books and electronic titles, go to www.nolo.com/law-authors/anthony-mancuso.html. Downloading Forms and Other Materials e print version of this book comes with a CD-ROM that contains legal forms and other material. You can download that material by going to www.nolo.com/ba c k -of-book/LIAB7.html. You’ll get editable versions of the forms, which you can fi ll in or modify and then print. Table of Contents Your LLC Companion 1 Overview of the LLC Top Ten Questions About LLCs 4 e Benefits of LLCs 6 Which Businesses Benefit as LLCs? 9 Comparing LLCs and Other Business Forms 10 Business Entity Comparison Tables 22 2 Basic LLC Legalities Number of Members 28 Paperwork Required to Set Up an LLC 28 Responsibility for Managing an LLC 29 Member and Manager Liability to Insiders and Outsiders 34 Are LLC Membership Interests Considered Securities? 38 3 Tax Aspects of Forming an LLC Pass-rough Taxation 42 How LLCs Report and Pay Federal Income Taxes 43 LLCs and Self-Employment Taxes 44 State Law and the TaxTreatment of LLCs 44 Other LLC Formation Tax Considerations 44 4 How to Prepare LLC Articles of Organization Go to Your State’s LLCFiling Office Online 52 Choose a Name for Your LLC 52 Check Your State’s Procedures for Filing Articles 59 Prepare LLC Articles of Organization 60 Finalize and File Your Articles of Organization 67 What to Do After Filing Articles of Organization 69 5 Prepare an LLC Operating Agreement for Your Member-Managed LLC Customizing Your LLC Operating Agreement 72 How to Prepare a Member-Managed LLC Operating Agreement 73 Distribute Copies of Your Operating Agreement 106 [...]... LLCs 18 | form your own limited liability company Number of Partners Limited partnerships may be formed by two or more people, with: • at least one person acting as the general partner, who has management authority and personal liability, and • at least one person in the role of limited partner Limited Liability Only for Limited Partners Limited partners enjoy the same kind of limited liability for... do not have this limited liability protection Also, owners of limited liability companies must file formal articles of organization with their state’s LLC filing office, pay a filing fee, and comply with other state filing requirements before they open for business Partners don’t need to file any formal paperwork and don’t have to pay special fees 6 | form your own limited liability company LLCs and... Other Business Forms 10 Sole Proprietorship 10 General Partnerships 11 C Corporations 14 Limited Partnerships 16 S Corporations 18 Business Entity Comparison Tables 22 4 | form your own limited liability company I n this chapter, we’ll cover the nuts and bolts of the limited liability company, or LLC:... check on your state tax website (see Appendix A) or ask your tax adviser to 10 | form your own limited liability company find out whether you face this unpleasant prospect Of course, in states with a high LLC fee or tax, chances are good that the state also has enacted fees that apply to other pass-through tax entities (limited partnerships and S corporations) In these states, you may decide that forming... trying to do it all without breaking the bank And if you’re considering forming a limited liability company, or LLC, you doubtlessly have another important consideration: limiting your personal liability for business debts or claims This book gives you the information and forms you need to make an informed choice on whether to form an LLC, either from scratch or by converting an existing partnership... trucking, and redecorating all under one legal, if not physical, roof There are many advantages to forming an LLC, as explained in “Top Ten Questions,” in Chapter 1 Are there any disadvantages to forming an LLC? Not many Just a few forms and fees This book alerts you to pitfalls you 2 | form your own limited liability company may encounter along the way and provides instructions on how to fill in all the necessary... from outsiders, your ownership interest in the LLC is not a “security” and you don’t have to concern yourself with these laws For co-owned LLCs, however, the answer to this question is a bit more involved If all of the owners of your LLC will actively manage the LLC, their ownership interests in the company will usually not be treated as securities However, when someone invests in your business expecting... Letter 179 Operating Agreement for Member-Managed Limited Liability Company 181 Limited Liability Company Management Operating Agreement 191 Minutes of Meeting .203 Certification of Authority 205 C Using the Interactive Forms Editing RTFs .208 List of Forms 209 Index Your LLC Companion R unning a business is an exciting experi... business These provisions usually say that profits and losses of the business should be 12 | form your own limited liability company If You Own a Business With Your Spouse Generally, if a husband and wife run an unincor po ated business together and share in its profits r and losses, they are considered the co-owners of a partnership, not a sole proprietorship, and they must file a partnership tax return... of your business and the thickness of your lawyer’s rug (We help you 14 | form your own limited liability company prepare an operating agreement in Chapters 5 and 6 of this book.) • Taxes General partnerships and LLCs can count on about the same amount of tax complexity, preparation time, and paperwork Even though you’ll probably turn over most year-end tax work to a tax adviser (for either a co-owned . Anthony. Form your own limited liability company / by Anthony Mancuso. — 7th ed. p. cm. Includes index. Summary: “Step-by-step instructions and all the forms needed to create a limited liability. 18 Business Entity Comparison Tables 22 4 | FORM YOUR OWN LIMITED LIABILITY COMPANY I n this chapter, we’ll cover the nuts and bolts of the limited liability company, or LLC: the most common questions,. ORANGE COUNTY REGISTER • Create an LLC in any state • Protect your personal assets • Get tax benefi ts Limited Liability Company Form Your Own Free Legal Updates at Nolo.com e Nolo Story Dear friends, Founded