Forming LLC’s

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Forming LLC’s

In a recent article, the National Federation of Independent Business (NFIB) exclaimed that its optimism index is at an all-time high, with small-business owners planning to break records with hiring and expanding.  https://www.marketwatch.com/story/small-business-owners-more-optimistic-than-ever-nfib-credits-trump-economic-policies-2018-09-11
This optimism also means that it is a good time to start a business. We therefore thought it would be a good time to provide a quick explanation of the limited liability company, the most commonly used entity for small businesses in Arizona.

The most common type of entity we create for clients is the “LLC,” or limited liability company.  The LLC tends to be used more often that a corporation because, among other reasons, it: (i) requires fewer corporate formalities; (ii) provides the owners (called “members,” who own “membership interests”) to separate their personal affairs from the business; (iii) allows for flexibility on tax strategy; (iv) permits the members to convert it to a corporation anyways; and (v) provides charging order creditor protection.

Powers & Neal has formed many LLC’s for clients. The process of forming your LLC consists of: (i) filing articles of organization with the Arizona Corporation Commission; (ii) obtaining an employment identification number (EIN); (iii) publishing the articles of organization as required by state law; (iii) listing a statutory agent as required by state law; and (iv) drafting an operating agreement and buy-sell agreement which is a contract between the members and managers of the LLC, and which is not a public document.

In order to set up your LLC’s checking account, you merely have to show the bank the filed articles of organization and the EIN.  Voila! You’re in business!  Just make sure to follow corporate formalities!  You do not want creditors to be able to “pierce the corporate veil” and get to the members – failure to follow corporate formalities allows creditors to do just that.

As long as the members and managers are compliant with the corporate formalities listed above, it will be difficult for creditors to get to the members’ assets.  With a LLC, a creditor can only obtain a “charging order,” allowing it to only get the cash payouts to the member, and not the actual membership shares.  By contrast, with a corporation, a creditor may be able to obtain the shareholders’ shares.

Most law firms can assist you with setting up your LLC (or for-profit or non-profit).  There are even document preparation services like Legal Zoom which try to help customers.  However, we are confident when we say that our service goes above and beyond just filing the forms and delivering your operating agreement(s).  We also provide you with ongoing, high-value / low-cost advice on matters such as marketing, domain ownership, intellectual property strategies, marketing, and an array of other matters.  (Note: your attorneys’ fees are tax deductible in these transactions!)

Further, we get to know and understand your business so that when you are ready to enter into agreements, we can draft tailored contracts to minimize you and your LLC’s exposure to litigation.

Ready to start a business? Call us today at 480-699-7992 – we respond to our clients’ inquiries quickly and with well-informed answers.  We’ll help you maximize opportunity and minimize risk.


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