24 Sep How to Use Your LLC in Business – Separating an LLC from its Owners
Are you the proud owner of an LLC?
Congratulations! But, be mindful that there is no such thing as a “set it and forget it” policy for you LLC.
Think of your company as an adopted 18 year-old. When you first meet this person, it is very competent and can do many things for itself, but it relies heavily on you, to guide it through life. It can sue and be sued, and it can enter into contracts, but it needs you to sign contracts on its behalf, and it’s not allowed to get a bank account or credit card without your signature (and personal guarantee). Sure, the analogy doesn’t carry on forever, but I’ve found it helps people better understand that the owner and the LLC are different people in the eyes of the law, but they are also inextricably linked, since you are its “legal guardian”.
And most importantly, in order to derive the real value out of your company – and utilize its underlying purpose – the law requires that you create distinctions between the owners and the company.
If your company is set up properly (you may have used a lawyer, or an online service), your new LLC should have a Company Record Book, which should have at least the following items:
- Certificate of Formation (Maine /Delaware) / Certificate of Organization (Massachusetts) / Articles of Organization or Formation (other states have different names for this organizational document);
- Executed Limited Liability Company Agreement (Maine) / Operating Agreement (numerous states);
- Initial Members and/or Managers Meeting Consents or Resolutions; and
- Employment Identification Number (EIN)
In Maine, upon filing the Certificate of Formation, the company is subject to the Maine Limited Liability Company Act, and is authorized to transact business in Maine. If you plan to transact substantial business or open an office in any other state, you need to register your Company in those states. Any competent business lawyer should be able field questions about if/when to do this.
Some basic rules to abide by:
Below are a few helpful notes on what to expect going forward with your LLC and some basic rules you should follow to help you avoid personal liability for the LLC’s obligations:
Make sure the company has its own bank account. We recommend using a local bank, but any bank will do. To set up the company’s bank account, go to a branch and bring with you the Company Record Book. We highly recommend that you apply for a credit card in the name of the business as well.
Maine law requires your Company to file an annual report by June 1 each year. The company’s first annual report will be due in the year following the year of its formation. This is a simple but important task that falls on the hands of the business owner(s), however, many people choose to hire someone to do this for their company each year, usually a lawyer or accountant.
If you hired Opticliff Law as your Company’s Registered Agent. Our services acting as Registered Agent include: maintaining your statutory “registered office,” acting as agent for service of process, maintaining your company record book, providing facilities for examination of your company record book, maintaining a current list of Members and Membership interests, providing notice of the Annual Report each year, and filing it on your company’s behalf, if requested.
Never commingle personal and business expenses. The commingling of personal and business assets must be avoided. Vendors should pay the business, not you personally, and all payments for business expense should come from the business bank account, not your own personal account. Personal expenses should not be paid from the company account. You may receive from the company reasonable distributions, reimbursement for legitimate business expenses, and repayment of loans.
Signing contracts on behalf of the Company. It is important that you sign any corporate documents or agreements on behalf of the company as an authorized representative, and not in your individual capacity. In the first paragraph of any agreement the company enters (contracts, leases, or otherwise), where the “parties” to the contract are spelled out, you should never see your name, only that of your company. When signing, you should sign using a format similar to the following:
|For: [Company Name]|
|Printed: [Owner Name]|
Its: [Authorized Member / Manager / President]
Approval of “Significant Transactions”: While it may seem a needless exercise for you to vote to authorize yourself to take certain actions, it is just that kind of formality that courts look for in determining whether the independence of the limited liability company should be respected. It is therefore a good practice to have a so-called “Unanimous Written Consent” signed by the Managers (or Members when appropriate) and filed in the company’s record book whenever the company takes on “significant transactions.” Examples of such action include the signing of leases, hiring of employees, major equipment purchases, the borrowing of funds (including promissory notes), establishment of employee benefit plans, membership issues, major changes in business operations, or other significant events. If you have questions about this process, which is again simple but important, any competent business lawyer can help you prepare the appropriate resolutions for you as needed.
Additional Info: We also encourage you to visit the State of Maine’s website for forms relating to employment, tax, licenses or permits, and other useful business information that may be applicable to your business, http://www.maine.gov/portal/business/.
If you have any questions, contact your lawyer, of if you don’t have one or need a new one, please do not hesitate to contact us at firstname.lastname@example.org!