Documents, Checklists, and Forms. Throughout this book, you will find sample documents, checklists, and forms. These items are included to help you better understand the issues discussed and to demystify the limited liability company process. If you would like to use any of these forms in your LLC, it’s a good idea to consult your lawyer or accountant for input and advice.
Insider Tips. As you read the text, notice the boxes located throughout the text. These are provided to emphasize important aspects of a discussion or to highlight additional information. They are particularly helpful when reviewing a chapter or when studying one of the larger sample documents.
The Book includes three appendices:
Appendix A. Supplemental LLC Forms. You will find 13 example forms and documents here to help you create the legal language necessary to set up and manage the legalities of your LLC.
Appendix B. State Reference Information. This is a directory to all 50 states and the District of Columbia, with all the material you need to get the forms and compliance items you need for whatever state you’re operating in.
Appendix C. Glossary. Because of the legal and structured nature of LLC formalities and procedures, there may be a term or phrase within the book’s discussions that you may not quite understand. To help you quickly find easy definitions to such terms as “piercing the corporate veil,” “tort,” and “indemnification,” you can refer to the Glossary (Appendix C).
Finally It would be impossible to cover all the LLC bases in one volume. One of my law professors once said, “This course will focus on the peaks.” Likewise, this book focuses on the peaks of LLC formalities and law. If you are interested in exploring some the valleys, your local law library is a good source of information.
The Ulitmate LLC Compliance Guide is not intended to be a substitute for competent legal and professional advice. Laws change; the business environment changes. Don’t try to do it all. As a businessperson, you must develop good working relationships with a lawyer, an accountant, and an insurance agent. Be aware that laws vary from state to state and the issues presented in this book are general in nature. Use your professionals to help you make this book work for you.
With that in mind, note that this volume occasionally warns about certain topics that present potential pitfalls and complex issues that warrant a visit to your local attorney’s office. Heed these warnings because small legal errors have a way of becoming enormous legal problems over time. In business law, some topics are simple and some are complex; if your needs are obviously complex, don’t try to do everything yourself. Sometime the best advice an attorney can give is “get a qualified attorney.”
Let’s get started.
SUPPORTING WEBSITE
You can find the forms included in this book and other materials related to starting and managing an LLC at this website: www.entrepreneur.com/formnet. You can customize these forms for your use as appropriate. There is no special code or costs involved in taking advantage of the materials at this site.
ABOUT THE AUTHOR
Michael Spadaccini is a business law author and attorney. He has practiced business law for small businesses and start-ups in San Francisco and Silicon Valley since 1993 and more recently in Austin, Texas. From 1991 to 1992, he was the Editor in Chief of The Connecticut Probate Law Journal, published by his alma mater, Quinnipiac University School of Law. He is the author of several business law books published by Entrepreneur Press and founded the legal education Web site, LearnAboutLaw.com.
ACKNOWLEDGMENTS
I’d like to thank Jere Calmes, editorial director of Entrepreneur Press, and the entire Entrepreneur Magazine and Entrepreneur Press team for giving me the opportunity to write this book.
I am also grateful to:
• Attorney, friend, and fellow golfer Dan Sweeney, who has contributed to this volume and to all my books by providing invaluable legal research.
• Attorney and friend Robert Kleinman, who has contributed to this volume and to all my books by providing invaluable legal research.
• My law professors at Quinnipiac University School of Law, who taught me the foundations of corporate and business law, which I now offer to you.
• All the clients who have sustained my law practice throughout the past 14 years and whose support helped me grow to become an expert in my field, with a special thanks to Don LeBuhn and his family’s business, Evolution Furniture of Berkeley, California, my first clients, for whom I organized my first corporation back in 1993.
• My family and friends, who offered their support throughout the drafting of this volume.
• Emmett Ramey, president of Oasis Press, who gave me my first book contract, based not upon any experience I could demonstrate, but solely upon my repeated and vehement pronouncements that I would do a fine job.?
Finally, and most important, my wife Mai.
PART I
Sources of Authority
CHAPTER 1
LLCs and Limited Liability Company Acts
The limited liability company (LLC) is America’s newest form of business organization. There is little or no historical precedent for LLCs; they are essentially creations of the state legislatures. Some commentators trace the origin of the LLC to a 19th-century form of business organization called the partnership association or limited partnership association. The great bulk of laws authorizing LLCs in the United States were passed in the 1980s and 1990s. Wyoming passed the first law authorizing the LLC in 1977. Florida followed in 1982. The watershed event in the rise of the LLC was a 1988 Internal Revenue Service ruling that recognized partnership tax treatment for LLCs. Within six years, 46 states authorized LLCs as a business form. By 1996, the last state to recognize LLCs, Vermont, had an LLC statute in place.
The LLC is often described as a hybrid business form. It combines the liability protection of a corporation with the tax treatment and ease of administration of a partnership. The limited liability company, as the name suggests, offers liability protection to its owners for company debts and liabilities.
SIMPLICITY AND FLEXIBILITY
While LLCs are essentially creations of state legislatures, corporations are truly ancient—and today’s corporate law still carries some unwanted baggage. The modern American corporation has antecedents that date to Roman times, inherited by us through English law. The basic principles of American corporate law have not changed significantly in centuries. Probably the single greatest disadvantage of the corporate form is the burdensome range of formalities that corporate managers must observe. A modern corporation’s heavy administrative burden is a remnant of the more traditional and formal
