One of the most common questions we get here at MyCorporation about forming a limited liability company or corporation is, “How hard is it to actually run this type of business?” Running an LLC or corporation is very different than running a sole proprietorship, and the government will expect those running the business to adhere to certain rules. It should be noted that the only governance document need for Corporations and LLCs is an Articles of Incorporation or a Certificate of Organization. However, there are other types of governance documents that should be kept and maintained.
In order to form a corporation, you have to file your articles of incorporation. And in order to form an LLC, you have to file what is normally called a certificate of organization. In both cases, these documents act a sort of birth certificate for the new business entity. They disclose the entity’s name, address, registered agent information, and the information of any managers or owners. A lot of states actually offer a “fill-in-the-blank” type of form on the website of their Secretary of State or department of corporations. However, these forms only meet the minimal requirements for a corporation or LLC as set by the state. They also don’t set the rules for how your company will actually be run. Along with these formation documents, you should consider drafting a set of bylaws or an operating agreement.
The articles of incorporation are great for providing information on the corporation to the state government, but there is a lot left unsaid. What are the functions of each corporate office? How are meetings called? What do the various board committees do? How do you limit the transference or issuance of shares? A good set of corporate bylaws answers these questions, and gives your corporation a framework from which the corporate officers can run the company. Governance is all about structure, and a good set of bylaws will give the fairly complicated process of running a corporation some much needed structure.
Most states do not require limited liability companies to have an operating agreement. However, it is still vital that you draft one to help in the governance of your company. A lot of important rules are left unwritten when it comes to an LLC, so you need an operating agreement to fill in those blanks. Normally, this document will outline the functions and responsibilities of the LLC’s members and managers. It will also disclose how much of the LLC’s assets each person is entitled to, the allocation of profit and losses, methods on how business decisions will be reached, and steps for dissolving the LLC. This may seem like a lot of work for a piece of paper you don’t legally need, but it will make running the LLC much easier.
Corporations are required to have annual meetings for both its shareholders and its directors and, if needed, can call special meetings outside of those annual events. When these meetings take place, it is vital that minutes are kept as an official record. Minutes aren’t even that hard to keep since they should stay pretty light – a role call, timeline, basic rundown of the major issues discussed, and a voting record should suffice. If you run an LLC with a partner, or partners, you should also make an effort to record any minutes during owner meetings and document major business decisions. Not only will this help solve some future disputes, but these minutes can be used to prove to the state that you are running your company as a separate business entity if they begin to question the validity of your LLC.
Have any questions about running an LLC or corporation? Need help drafting some governance documents for your business? Leave a comment below, or give us a call at 1(877)692-6772 and we’ll be happy to help!