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LLC

LLC is the abbreviation for limited liability company. Some people mistakenly believe it means limited liability corporation.

Is It Time To Update Your LLC Operating Agreement?

By Business Contracts, Business Lawyer

When you own or co-own a limited liability company (LLC), you enjoy a lot of flexibility running the business if you have the right operating agreement in place.

Unfortunately, what was good for your company when you set up the LLC often isn’t ideal (and even harmful) as circumstances change.

Because new circumstances will change your priorities. These can include:

* adding or removing members (owners)

* getting married or divorced

* having kids

* succession planning (who will run the business when you retire?)

* changing the company’s business model

* electing to be treated like a different entity in order to reduce taxes paid

And if there are multiple members, you’ll want to make sure there’s a “Texas shootout” or other buyout provision in the LLC’s operating agreement that makes it easy for owners to leave without destroying the company in lawsuits.

An experienced business lawyer can fix your operating agreement so it makes sense based on existing circumstances while planning for the future.

Are You Commingling Multiple Businesses?

By Business Contracts, Business Lawyer

If you own multiple limited liability companies or corporations are you commingling the businesses?

If so, you expose these ventures to unnecessary legal dangers.

For example, a court might decide one company is the alter ego of the other and hold both of them liable in a lawsuit. Instead walls of protection, you’ve let down the drawbridge and invited in plaintiffs to raid all of your companies.

So, how do you avoid this commingling danger?

Treat them as separate companies.

For instance, don’t raid the bank account of Company A to pay Company B’s expenses simply because the latter is short on cash.

And when the entities do business with each other, use written contracts that explain the rights and duties of each entity under the agreements.

For example, if Company A wants to advertise on Company B’s website, there should be an advertising agreement in place where B gets compensated somehow by A for running the ads. No freebies from one company to the other simply because you own both.

What about intellectual property? If one company owns the IP, but you want both companies to use it, chances are you’ll need some type of licensing agreement between one entity as owner (licensor) and the second entity as licensee.

An experience business lawyer can help you put the right documents in place to protect your multiple businesses from improperly commingling. And if you’ve already been commingling, he can help you fix the situation to minimize the legal risks.

What Does Your Business Entity Own?

By Business Contracts, Business Lawyer

If you set up a limited liability company (LLC) or corporation for your existing business, what does the new entity own?

Too often, the answer is nothing.

How does that happen?

Your sole proprietorship or partnership never gets around to actually transferring the business assets to the new entity.

So, you’re really still running the business as before while pretending there’s a corporate liability shield in place to protect you as the owner.

Unfortunately, a hollow entity (without assets) isn’t going to protect you personally.

Naturally this means you’ll want to transfer the assets to the entity so that it can operate as intended for tax and liability purposes.

An experienced business lawyer can help you use the right contracts and assets transfer paperwork in a way that makes sense for your business model. Because if you’re going to set up a corporation or LLC, you might as well take advantage of it.

LLC Member Personal Liability Exposure: What You Need To Know

By Business Contracts, Business Lawyer

LLC Member Personal Liability ExposureIf you run your business properly as a limited liability company (LLC), you can shield your personal assets from most claims arising from your venture. However, there are important exceptions to this general rule of LLC member personal liability protection you should be aware of and plan accordingly.

These exceptions include:

  • Taxes
  • Environmental Contamination
  • Personal Guarantees

Tax Liability

If your business owes taxes to the U.S. Internal Revenue Service (IRS) or your state’s department of revenue, you may be personally liable for those taxes if the LLC lacks sufficient income or assets to pay the amount owed. Subject to certain exemptions (e.g. a homestead protection statute), the taxing authority may attempt to levy on your assets (e.g. personal investments) in addition to the LLC’s assets in order to increase the odds of payment.

Environmental Liability

As a general rule of thumb, you may be held personally liable for your LLC’s environmental contamination issues under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and/or similar state environmental protection laws.

For example, if your LLC cannot afford to pay for environmental remediation of a contaminated site, you may be personally on the hook for payment of remediation costs.

Personal Guarantees

When an LLC is new, has minimal assets or income, or there are circumstances that create doubt about the ongoing viability of the company (e.g. potential loss of government subsidies), it’s common in certain business transactions to require a personal guarantee from LLC members (and their spouses) to increase the odds of performance and minimize the risk of lost.

Two common situations where personal guarantees are sought from LLC members are (1) commercial leases and (2) business loans. Landlords want their rent and lenders want to be repaid.

If your limited liability company can’t pay rent or defaults on a loan, those personal guarantees mean you may be responsible for payment instead.

Will A Corporation Shield Me From These Personal Liabilities?

No. Generally your personal liability exposure for these important exceptions to the entity shield exist whether or not your business is a limited liability company or a corporation (C corp or S corp).

Although the entity’s liability shield is important to have, it’s not 100% effective.

Related Article: LLC Operating Agreement – Why Limited Liability Company Members Should Use One

Can You Minimize LLC Member Personal Liability Exposure?

Yes. An experienced business lawyer can help reduce your personal risk exposure as an LLC member by the language used in your LLC’s operating agreement, in business contracts, and advising you to take other steps.

LLC Operating Agreement: Why Limited Liability Company Members Should Use One

By Business Contracts, Business Lawyer

llc operating agreementThe Difference Between An LLC Operating Agreement and Corporate Bylaws

One of the essential business contracts for a limited liability company, an LLC operating agreement (also known as an LLC Operation Agreement or LLC Membership Agreement) is similar to the bylaws for running a corporation.

However, a good operating agreement makes it easier to run your limited liability company without a lot of the paperwork formalities required for a corporation.

Many entrepreneurs use a LLC rather than a Subchapter S corporation as the entity of choice for their companies. If you’re one of them, the LLC’s Operating Agreement is your roadmap to getting things done easily but in a legal manner.

Related Article: How To Set Up A Texas Business In Just A Few Steps

The Importance Of Following The Agreement’s Terms

Why is it important to follow the terms of your LLC Membership Agreement?

Because it’s one of the key formalities you must observe to preserve the entity shield from personal liability in many matters faced by entrepreneurs in a sue-happy society.

7 Key Issues To Cover In Your LLC’s Operation Agreement

Here are some of the issues an experienced business lawyer should address when drafting your limited liability company’s operation agreement?

1. Will one member or all members manage your LLC?

2. What are the capital contributions made by each member?

3. Who makes decisions on behalf of the LLC and how are they made?

4. How do you add new members to your limited liability company?

5. What happens if one of your members decides to sell, retire, dies, or files for bankruptcy?

6. Will you use alternative dispute resolution to handle member spats? If so, what type, what law applies, and where will it occur?

7. When and how will your limited liability company terminate its existence and wind up its affairs?

What If Your State Doesn’t Require An Operating Agreement?

Some states don’t mandate that members have LLC operating agreements.

Yet, as a practical matter, as your business attorney can explain to you in detail, it’s difficult to run a limited liability company without such an agreement in place. For example, your bank will probably insist on seeing the agreement as a condition for setting up your company’s checking and savings accounts.