Operating An LLC: Everything You Need to Know
Operating an LLC varies depending on the state you choose to operate. Before you form your LLC, you’ll have to determine where you want to register your business. 3 min read
2. Determine LLC Ownership
Operating an LLC varies depending on the state you choose to operate. Before you form your LLC, you’ll have to determine where you want to register your business. Some of the below factors should be considered when choosing which state to form in:
- The state you want to actually operate your business
- Initial LLC fees, as some states charge higher fees than others
- Annual fees
- State advantages, i.e. anonymity
Should You Hire an Attorney?
Now you must determine whether you should form the LLC yourself or have an attorney help you. Remember that there are advantages and disadvantages to hiring an attorney. Hiring someone will cost you more money, which can be quite expensive. If you form an LLC on your own, however, you can have total control over the process, and this can help you stay organized.
However, if you fail to properly set up your LLC, you could incur additional costs, i.e. penalties. Furthermore, you might have to hire an attorney if you fail to properly set up your LLC, which will cost additional money.
Instead of hiring an attorney, you could consider using an LLC organization service, which generally offers its services at discounted prices. The prices usually range from $200 to $300. Such companies offer to file the Articles of Organization, prepare a boilerplate Operating Agreement, and obtain a registered agent on your behalf. They can also assist in the requirements for permits and licensing, as you might need to obtain such licensing before operating business in any particular state.
If you do choose to hire an attorney, you can receive great legal advice, including other alternatives for how to save money. Particularly, a qualified attorney can help assist with more complex LLCs, like those with several owners. The attorney can also assist with preparation of member meetings and meeting minutes. Keep in mind that attorneys can charge an hourly rate of hundreds of dollars depending on the attorney and state in which you want to form your business.
Determine LLC Ownership
If you operate a single-member LLC, then you will likely want to manage the LLC on your own. However, if you operate a multi-member LLC, you will need to determine how the LLC will be managed. You can either choose to operate as a manager-managed or member-managed LLC. If you choose a member-managed LLC, then the members will be responsible for overseeing the business. If the LLC chooses to operate as a manager-managed LLC, then the owners will need to hire a third party to oversee the daily business operations. This manager can be another member or an outside party. Regardless, if the business has a third party manager, then the members will not have daily oversight of the business operations. Instead, the owners will have only voting powers and powers to make significant business decisions.
Keep in mind that the LLC doesn’t have a maximum cap on the number of owners. Therefore, the LLC can have an unlimited number of owners. With that said, the more members you have, the more complex the LLC becomes. Moreover, this could cause potential legal issues as disagreements could arise amongst members, particularly with regard to the overall management decisions of the LLC.
All members of the LLC should draft an investment representation letter. The letter should offer some sort of protection to the business, indicating that the member has the necessary qualifications and fitness for being a member. The letter will also identify the member’s objectives in the business, and what he or she sees for the business.
The owners contribute a certain amount of their own money to the LLC. This contribution gives each member a portion of ownership over the LLC. The capital contribution is the total amount of cash, property, or other assets that the member contributes to the business. This capital contribution could be lost if the LLC is sued. But this is generally the extent of the amount of money the member could lose. Therefore, the member’s personal assets are usually protected.
The LLC Operating Agreement can also determine the membership interest percentages. For example, if a member contributes 25% of his or her own capital to the LLC, the Operating Agreement could determine that the member holds a 45% membership interest, so long as all other members agree.
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