Frequently, clients ask me what kind of documents they’ll need when they’re forming an LLC. The simple answer is that it depends on what type of company the LLC is going to be.
There’s a misconception that forming an LLC is tantamount to acknowledging that your company is always going to be small.
That’s rubbish. Chrysler’s an LLC with over $60 billion in annual revenue. Forming an LLC means you have to adapt your approach to growth; it doesn’t mean you have to abandon it.
If you’re a single member LLC, the only document that you need is the articles of organization. It’s also a good idea to set up a basic operating agreement to describe the policies you’re going to have in place with respect to distributions, succession, adding members, death/disability, and governance. Then, by following those policies, taking them seriously, and keeping good records, you’ll be comfortable that the liability protections afforded to an LLC will be taken seriously by a court of law.
If the LLC has two or more members, it’s critical to set up an operating agreement to formalize your understanding. You need to set up policies for decision-making, management, distributions, adding or removing members, death/disability, bankruptcy, departure, tax issues, and governance.
For some types of businesses, this might be enough. For others, you’ll need more. For example, if there is intellectual property associated with the business, you’ll need to create an agreement with your employees and contractors to ensure that intellectual property belongs to the company. Similarly, if there are significant assets that you use as part of the business, you’ll want to make sure there’s written agreements in place to verify that those assets belong to the company and not the individuals working for the company.
What’s more, recently many entrepreneurs have come to me to set up vesting schedules with an LLC. Traditionally, this was more common with restricted stock agreements and the domain of corporations. But today, more companies want to stick with the LLC structure and set up vesting schedules to incentivize employees to stick with the company longer. This may be handled by setting up a “restricted securities agreement,” as distinguished from a restricted stock agreement.
And as the LLC grows, the company will need to form contractual relationships with landlords, tenants, vendors, and clients in the same way any other company does.