In all 50 states, an LLC has perpetual duration just like a corporation.  This means that once one is formed at the state level, it continues to exist as long as it remains in good standing with the state.

In order for an LLC to remain in good standing, it needs to always have a properly appointed active LLC registered agent; it must submit any required state information filings to the state on time; and it must keep up to date on any maintenance fees owed to the state.

Most entrepreneurs set up their LLC to have the default perpetual existence. An LLC can always be terminated at any time in the future by the filing of a certificate of  termination if and when the members decide that the entity is no longer needed.

While a perpetual life is a default attribute for the limited liability company, you can limit the life of your specific entity if you want it to automatically terminate by a certain date.  This is accomplished by including a provision in the charter document of the business stating that the LLC will terminated on a specific date.  If you do this, then when that date comes, the limited liability company will cease to exist.

The most important step for LLC formation is to make sure you do it as soon as you know you need a limited liability company. You do not and cannot obtain the protection afforded by this legal entity until the LLC formation process has been completed and done properly.

Choose State of Formation.
The initial question is to decide where you are going to form an LLC for your business. For most small businesses, this is in the state where you will be operating your business. Don’t fall into the trap of forming in Delaware or Nevada and thinking you will not need to register in your state. If you are conducting any regular business activity in your state, you will end up having to register your LLC there in any event. Save the double filing and maintenance fees and extra registered agent fees. Now, if you are putting together a complex LLC with many investors in different states or countries, then Delaware may make sense. In such situations, you should consult with your business attorney.

Choose a Name for Your LLC

Each state has name rules. In every state, you cannot name a new LLC with a name that another LLC registered in that state already has. In fact, in most states the name cannot be similar to other names. Recently, most states also prevent an LLC from having a name of any legal entity registered so this would cover corporations, registered partnerships and sometimes trusts. Some states have extra name rules. For example, you may not use words that imply a government affiliation and some will prevent the use of certain words. A good LLC formation services provider will ensure that your name is available prior to submitting your filings.

Appoint a LLC Registered Agent

In every state, the principal business of an LLC formed in that state is not required to have a principal business address in the state.  However,  your LLC must have a valid and permanent registered agent an registered office address.  What is the difference?  A registered agent is not an operational role but purely an administrative role for state regulation purposes.  If a third party wants or needs to serve legal papers or important notices to an LLC formed in a state, that LLC must have an officially designated person or legal entity in that state to accept such papers.

This is needed because a limited liability company is a fictitious person.  It does not have a physical being. But because it is its independent person under the law, the state needs a certain and known place for communicating with the business. Each state has its own requirements for what qualifies as a valid registered agent.  Check out the specific rules or inquire with your LLC formation services provider.

Determine the Mandatory LLC Filing Disclosure Requirements

Each state can vary greatly when it comes to what information must be disclosed and provided in an LLC formation filing.  Delaware is famous because it requires so little in terms of information. This is great for privacy purposes.  Other states like Texas require more information and even require that members be listed is the LLC is member managed.  The key here is to ensure that you include all the statutorily mandated information or else your LLC filing will be rejected or placed on hold- which creates a nightmare or long delays to get your LLC registration back on track.

Fees

Filing fees can change from year to year.  Paying the wrong amount or writing the check to the wrong entity are two of the most common reasons for LLC registration rejections.  Take the time to get the latest information on what is necessary.

SUMMARY

Because LLC registration and procedures are so important to getting your business up and running quickly and to ensure proper personal liability protection, you should consider retaining the services of companies who specialize in LLC formation services.  Business attorneys are certainly a possibility but often their fees for this process are quite high.  Another option is your accountant but many accountants will mark up the service and outsource to a document filing LLC formation company.  With the Internet, it is now possible for new business owners to go directly to the source and purchase expert LLC formation services directly from reputable and experience companies.

One of the biggest benefits of running a business through a limited liability company is the automatic qualification of pass through taxation. Unlike an S corporation which requires that certain conditions be met and maintained in order to get pass through taxation, an LLC automatically provides this.

Why is this better than other tax options?

Well, it is not better in all cases. Some businesses are better off with corporate taxation and the ultimate decision depends on each case, but in most small business cases, pass through taxation wins out.

Here are some fundamental basic attributes:

1. Profits made by the business are passed through to the owners so the LLC itself does not pay taxes on profits. This avoids the double taxation of the corporate tax structure and often allows owners to keep more profits.

2. Losses are passed through. Generally, if a business generates losses in a year, those losses pass through to the owners and if the owners have other income, they can benefit from having the losses offset other income in the current year. There are some limitations so check with your accountant.

3. Contributions can generally be made by the members to the LLC at any time without tax consequences.

4. The LLC files an informational tax return but pays no income tax, instead items of gain, loss and other tax attributes are passed through to the members. With a single member LLC, there is no return at all and all tax reporting is done on the individual’s personal return.

5. Pass through taxation through an LLC also presents some opportunities for tax planning among members. This is an incredibly complex area and you should consult with your tax attorney or accountant, but one of the reasons the wealthy use LLCs so often is because of the tax flexibility offered.

Many business owners have a lot of questions about the requirement for their LLC business to have a registered agent.  They do not understand exactly what this person is and what its roles and responsibilities are.  Hopefully, this article will be of help.

Every state in the US requires that an LLC formed in that state have an officially appointed registered office and registered agent in that state. This the the person and place that is designated for accepting legal papers that a third party may need to deliver to the LLC business.

Why is this necessary?  Because, unlike a physical person, an LLC is a creature of the law.  Aside from a document showing its existence, it does not otherwise have a physical presence and being.  But because it is its own separate legal person, it must have some physical presence in the event some other party (whether it be the government or another business or person) needs to deliver communications or important documents to the business.

The registered office address and the registered agent person at that address meets this purpose.  As a result, the state records tells everyone who the registered agent is of an LLC.  These third parties now know exactly where to deliver legal documents to the LLC.  And once those papers have been sent to that registered agent, the law recognizes it as officially delivered to the LLC business.

Now, it is also important to know that the registered agent only serves this adminsitrative purpose.  It is not a lawyer or advisor to the LLC and has no other reponsibilities other than to forward documents received on behalf of the LLC to the last known address given by the LLC owners to that agent.  It is very important that you keep the registered agent of your LLC up to date on where to notify you if it receives legal papers and where to send the papers to.

Can You Serve as Your LLC’s Registered Agent?

Yes as long as you have a permanent physical address in the state of formation where legal papers can be accepted. Every state has its own set of requirements for who can serve as a registered agent for a limited liability company formed in the state.  In most cases, the main requirement is that the person have a physical permanent address within the state where papers can be accepted by the agent during normal business hours.  A few states require that if the agent is an individual it also must be a member or manager of the LLC.

Many business owners choose to retain the services of a registered agent company as this keeps their name and address outside of the public database for registered agent in the state and also gives them one less legal requirement to worry about.  Because this role is so important to potentially preserving your rights in the event of a lawsuit, you should only appoint a reputable service that specializes in registered agent services.

CLICK HERE to learn more about one of the top leading registered agent services in the country.

A sole proprietor is inextricably associated with the sole individual owner and so when that owner dies, the business really dies.  It becomes a bit of a legal nightmare to determine how to handle the business of a deceased owner.  Many times, because of this problem, thriving businesses face major issues and sometimes are forced to go out of business.

A limited liability company is a legal person separate and apart from its owners so its life and its ability to conduct and continue running its business operations are not affected by the capacity or death of any owner.

Just as you as an individual should always focus on longevity now for your body and overall health, you should always be thinking about what you can do for your business to ensure it remains healthy and self sufficient regardless of issues that may come up with owners or employees.

The first step is to operate your business through a separate entity such as an LLC.  Then, you should always have longevity principles and goals in mind when making decisions about your business and its operations.

The answer to this question really depends on the specific circumstances.

One reason businesses create LLC entities is to avoid member personal liability for business contract obligations by having the LLC sign contracts. However, there are possible situations where a landlord can sue a member of an llc lessor such as situations where the landlord has a personal claim pursuant to the terms of the contract, a member personally guarantees the contract, the landlord seeks to “pierce the LLC veil” or in situations where the landlord feels it has a legal claim against the member individually outside of the lease contract.

If you are just starting an LLC, we recommend you read our Six Step LLC Formula eBook to help reduce the likelihood of personal liability and you should ensure the lease contract obligations only apply to the LLC entity. A lease contract is one transaction where it makes sense to hire a lawyer because they generally are a longer term contract and a relatively significant obligation.

If your LLC is already in an arrangement and is facing issue with the landlord, you should seek the advice of a lawyer to determine the possibility or likelihood of any potential member claims based on your situation. As noted, the answer really depends on specific facts and circumstances such as the specific provisions of the contract, whether the LLC member has done anything outside of the contract, and how the LLC has been operated and maintained.

The answer to this question really depends on the specific circumstances.

One reason businesses create LLC entities is to avoid member personal liability for business contract obligations by having the LLC sign contracts. However, there are possible situations where a landlord can sue a member of an llc lessor such as situations where the landlord has a personal claim pursuant to the terms of the contract, a member personally guarantees the contract, the landlord seeks to “pierce the LLC veil” or in situations where the landlord feels it has a legal claim against the member individually outside of the lease contract.

If you are just starting an LLC, we recommend you read our Six Step LLC Formula eBook to help reduce the likelihood of personal liability and you should ensure the lease contract obligations only apply to the LLC entity. A lease contract is one transaction where it makes sense to hire a lawyer because they generally are a longer term contract and a relatively significant obligation.

If your LLC is already in an arrangement and is facing issue with the landlord, you should seek the advice of a lawyer to determine the possibility or likelihood of any potential member claims based on your situation. As noted, the answer really depends on specific facts and circumstances such as the specific provisions of the contract, whether the LLC member has done anything outside of the contract, and how the LLC has been operated and maintained.

You can minimize risk of personal member liability by following certain rules when conducting business and maintaining sufficient LLC governance formalities including executing proper LLC governance forms.

BizFilings is the grandaddy of incorporations and limited liability company organizations.  This is their specialty and they have been helping business owners with this service for many years.  In fact, they have been assisting law firms with the same services for much longer.

My company has researched the incorporation services companies on the Internet and we found that most of them have very little knowledge to provide this service and even less when it comes to customer service.

I am the first to warn any new business owner to stay away from most of the low cost and fly by night incorporation services available on the Internet. You just do not want to risk the potential problems of an improper LLC formation or incorporation.

BizFilings and its sister company CT Corporation is trusted by large national corporate law firms.  Another benefit to using them is that they offer most of any document filing service or amendments that an LLC or corporation may need later. Because of their specialty in this area, they know the growth cycle and requirements for corporate and LLC maintenance and can help you along the way.

If you are considering BizFilings, you can rest assured that you are getting the highest quality service available online.  They are backed not only by a professional dedicated staff but by a billion dollar legal services company dedicated to serving businesses and the legal industry.

If you would like a more detailed review of their services click here for a helpful review: BizFilings

Upon first glance, this question may sound strange to most people. How can a limited liability company entity also be a corporation?

But the answer to this is actually YES. You see, an “S corporation” designation is not a legal entity choice. Rather, it is a tax designation under the Internal Revenue Code. Before the existence of the LLC entity, the IRS created the S corporation as a way for a corporation that is a small business to avoid the double taxation of the corporate tax structure.

The S corporation rules require that the legal entity meet a laundry list of requirements that are designed to ensure that it truly is a small business as defined by the tax laws. These restrictions related to the number of owners, the type of owners, and a required simplicity of capital structure.

They named it the S corporation election because at the time, only the corporate legal entity qualified to elect S corporation status. However, in 1997, there were regulations passes that enabled the LLC (limited liability company) to also elect S corporation tax status if the LLC also met the laundry list of small business IRS requirements.

So, an LLC can be formed as a limited liability company under state law and gain all the state law benefits but also qualify to be taxed as an S corporation under federal tax laws. This is just one of the many advantages the LLC has over other entities. It offers the most tax choices.

Now, the LLC by default already qualifies for a single layer of taxation and there are no requirements to qualify for this. Accordingly, it does not have the same concern of double taxation as the corporation. Both the LLC default tax structure and the S corporation tax structure offer the same pass through taxation (single level) benefits.

However, there are some differences between the two tax structures that may or may not benefit your particular business. If this is an issue you want to explore, you should seek the advice of a tax attorney or a tax accountant who has ample experience in the differing tax structures.

MORE RISK OF PERSONAL LIABILITY FOR A SINGLE MEMBER LLC

The same liability protection for multiple-member LLCs is available to single-member companies under the law. The problem is that the single member entity runs a higher challenge risk in a court of law. Many single-member owners have been shocked to find out that they have lost personal liability protection because they failed to operate their LLC entity in the proper way.

Under the law, LLCs must be run by themselves, not the owner personally. Since single owners have no one to answer to, there is a risk that the person who creates an LLC may ignore the legal entity status while actually running the business.

Even if you do run your business properly, aggressive lawyers can work to convince the court that your are running the business personally and not as the LLC itself. Claims of this type are called “piercing the veil”. One way to protect yourself against this kind of claim is by having an operating agreement properly filed. You must also follow the requirements of the operating agreement to ensure your protection.

ESTABLISHING SEPARATION WITH AN OPERATING AGREEMENT

There must be sufficient provisions in the LLC Agreement to ensure the LLC is a separate and distinct entity from the actual operator of the business. Because of this, you must at least include a provision that requires votes of the owners to be taken on major decisions.

The procedures in the operating agreement must be followed by the single member when running the business. You should document your compliance with particular provisions regularly to protect yourself. Proper documentation will help you to show that the owner acts separately and distinctly from the business. This is important, should there be a challenge in court.

COMPLIANCE IS EASY BUT NECESSARY

The paperwork obligations to comply with the operating agreement are not difficult. You can keep up with your paperwork easily by using Written Consent.

A single owner cannot use written consent unless the LLC Operating Agreement has provision for it. Including a Written Consent provision will let you vote and act through an uncomplicated written approval form. Using this kind of form lets you easily meet your obligations to show sufficient independence and maintain the protection against personal liability.

A single member LLC is different from a multi-member company because there is no need to collaborate among owners. So, the same level of checks and balances regarding governance is not required.

However, the risk of personal liability is greater and so having an appropriate operating agreement and knowing what you should do each year to document and prove the separation of owner and business is essential.

If you would like more details on exactly how to do this, visit our site at TheLLCExpert.com which has more articles for the Single Member LLC and offers a Single Member LLC Operating Agreement Package with step by step instructions on how to preserve your protection.

An S Corporation Is a Tax Status

It is important to first understand that an S corporation is not a legal entity in the same way that as an LLC, a corporation or a limited partnership entity.  An S corporation begins as a general corporation under state law.  The “S” is really a tax characteristic under the Internal Revenue Code.  So when you are looking at your state laws for different entity requirements, you will not find the S corporation in the corporations and legal entity statutes.

What this translates to is that the only reason to be an S corporation is for tax purposes.  An S corporation is a corporation under state business organization law and subject to the same formalities and requirements as a corporation. The corporation generally has more legal mandates and a less flexible structure when it comes to business operations.

An S Corproation Has Limitations and Conditions

Also, from a tax perspective, the Internal Revenue Service imposes a laundry list of requirements and limitations for an S corporation to meet in order to qualify for a single layer of taxation.  On the other hand, the IRS automatically qualifies a limited liability company for such single layer of taxation without any requirements of an election or additional restrictions and limitations.

These restrictions and limitations must continually be adhered to and any deviation, even if it is accidental, will result in loss of S status.  A loss of S status usually means triggered tax obligations and sometimes penalties and fees. One benefit of the LLC is that you, as a busy business owner, do not have to worry about these.  It is one less set of legal compliance requirements you need to keep up with as your business evolves.

While many of these restrictions and limitations may not seem to onerous when starting a business many businesses have later found them to negatively affect their ability to grow or take on financing in later stages. It is sometimes difficult later to unwind an S corporation status if it is needed for business reasons.

An S Corporation Is Subject to Same Formalities and Requirements as a General Corporation

A corporation is simply not as flexible as an LLC when it comes to operations and ownership matters.  The corporation statutes structure a corporation with a required board of directors and standard stock ownership.  The LLC can alter the legal default structure of an LLC by agreeing to different arrangements in an LLC Operating Agreement.

From a non-tax perspective, the LLC clearly provides a lot more simplicity and flexibility which is important to a small business.

An LLC Can Choose S Corporation As Well for Tax Purposes

From a tax perspective, there is a difference between a default LLC tax structure (which is known as a pass through) and an S corporation tax structure.  Both offer a single layer of taxation but there are some technical and sometimes complex differences when it comes to specific tax matters like the ability to take losses, the ability to allocate tax items to owners, and self employment taxes.

Now, having said this, one thing that many do not know. .  even some accountants do not know. .  is that an LLC can choose an S corporation tax structure if it desires.  It requires meeting the same laundry list of requirements and making an election.  But bottom line here is that a limited liability company can have all the state law advantages of an LLC but be taxed exactly like an S corporation if this is more suitable.

The S corporation does not have this flexibility in choosing tax structure.  The LLC is a newer entity in which both state lawmakers and the federal government (Internal Revenue Service) made it a goal to be most suitable for a small business owner.

One of the many reasons that S corporations are still popular is because accountants are used to using S corporations as they have been around longer and so they advise their clients to use them.  Many of these professionals have not kept up to date on the tax rules applicable to the limited liability company.  Now, in some situations using corporation that has elected S corporation status may be preferred but make sure that the person advising you is experienced in both types of legal entities when conducting this analysis for your situation.

The rights and powers of each member to an LLC is defined by the provisions in the LLC Operating Agreement of the particular limited liability company business.  So, the answer to this question will vary widely based on what rules, powers and obligations the members have agreed upon to apply.

Having said that, the most common structure when it comes to LLC decisions is that each member’s voting power is based on his or her relative ownership in the business.  Accordingly, if a member owns more than 50% of the business, this majority member will control the ultimate decision.

Given this, if there are other members who own a significant interest (albeit not a majority), such members can negotiate to require that their vote is required for all major actions or certain, identified business decisions.  This becomes a negotiation between members when they are putting their business together or before a new member is admitted.

One option used is to make the limited liability company a manager managed LLC and to give all significant LLC members a manager position which cannot be taken away as long as that person is a member.  In this structure, a non-majority LLC member gets more power for every day business decisions.  Now, the majority member can reserve significant and strategic decisions for himself by requiring a member vote for these.

Despite the opportunity for negotiation and planning upfront, in most first time business scenarios, members are not aware enough to think through and plan for this and they do not get legal representation to handle this after LLC formation.  As a result, in most cases, default provisions of the LLC laws and in most standard LLC Operating Agreements grant the majority owner final say in the event of a disagreement.

Now, when a member makes a decision on behalf of the LLC, he/she does have certain fiduciary duties to hear out the other members and to make decisions that are reasonably in the best interest of the LLC business.  So, there are some laws that prevent abuse by a majority member.

While some small businesses are thriving, there are many other ones that are having a difficult time surviving in this current economy.  When the economy slows, both consumers and businesses spend less.  As a result, businesses large and small start to struggle.

For those troubled businesses that operate through an asset protection vehicle like an LLC, the debts and obligations of the business are those of the limited liability company and not the business owners personally.  This general rule applies as long as the business owners did not personally agree to be liable for business obligations.

This is an important concept because in the worst case scenario when a business has no choice but to file bankruptcy, it is the legal entity that files bankruptcy not the business owners. If the same business was a sole proprietor business, then the business owner is personally responsible legally for all the debts and obligations of the business.

The exact same troubled business operating outside of an LLC format forces the business owner to file personal bankruptcy if his business is unable to handle all the business debts and obligations. A personal bankruptcy is one of the worst thngs to have on your credit record and it will affect your financial profile for many years.

If an LLC needs to file bankruptcy, the bankruptcy does not affect the financial credit of the business owners.  Remember, the LLC is a separate and independent entity.  This is another benefit that every new business owner should value when starting a business.

Small business is always worth the effort.  It is possible to build enormous amounts of wealth but it also can create problems and challenges.  Many successful entrepreneurs experienced several business failures before they made it big.  A smart business owner should always use risk management planning and asset protection methods such as setting up an LLC.

I have received a lot of inquiries about whether the use of a limited liability company llc shields a person from having to file for personal bankruptcy if the business is failing and has debts it cannot pay.

The answer to this depends on what you have done in your business.  First, if you had decided to form an LLC when you started your business and then transacted all business in the name of the LLC, then the LLC liability limitation provisions protect you from being personally liable for obligations under those business transactions.  For example, if you signed a vendor contract only in the name of your LLC, then the obligations including any payment ones are those of the LLC not you personally.

In times like these, where both large and small businesses are not making it, those that had formed an LLC are much better off because they are not generally personally liable for any business obligations.  If an LLC business is in dire straits and bankruptcy is the only answer, then it is the limited liability company LLC that files for bankruptcy, not you personally.

Now, if in your business transactions, you agreed to be personally liable for a business debt, this protection would not apply to those deals.  This is because you affirmatively agreed to personal liability for a business debt.

Overall, if you conduct business in the name of the LLC, this is a tremendous benefit of an LLC.  Most people do not think about business failure when starting a business but the LLC protections provide this substantial benefit in the event of a business failure.

Most limited liability companies are taxed as a pass through. So, I assume this question is based on an LLC that is not taxed as a corporation.

With pass through taxation, the LLC itself as an entity never pays taxes.  However, from an accounting perspective, all the accounting items that are relevant to the business are taken into account.

So, practically, you would take all your revenue, expenses, gains and losses for your business is and determine what the taxable income, if any, or the taxable loss of the business is at the end of the year.  You would apply all the tax rules, limitations, restrictions and benefits to these numbers.

The details of all the accounting items that are relevant to determining taxation are then set forth in a document which varies depending on whether your limited liability company is a single member LLC or a multi-member LLC.

For the single member LLC, the tax reporting and detail will be included in a Schedule to the single owner’s personal tax return.  The end number, if it results in taxable income, will be added to the single owner’s other income on his/her return for purposes of determining the overall tax liability.  If the business is actively run and there is a loss, then the single owner can take the losses to reduce his income tax liability on other income.

For the multi-owner LLC, the LLC includes the detail no an informational tax return – the Form 1065.  It then takes the bottom line income or loss and allocates it among the multi-owner members based on the provisions of the LLC Operating Agreement. Each member gets a form which shows his or her allocation of the LLC’s income or loss.

So, even though the LLC itself does not send a check to the IRS, the procedures and analysis for determining the taxable income or loss of the LLC business is done as a business entity.  But then the income or loss is passed through to the owners of the business to report on their individual returns.  The result of this is that the income of the business is only subject to one level of tax. And, in most cases, if there is a loss, a business owner can get a benefit by being able to take that loss to reduce tax liability on other income.

Today, a well know legal professor (expert in business organizations law) filed a brief in a landmark Florida case that addresses a fundamental single member LLC matter. If the court agrees with his position, this could mean the definitive end to any charging order protection for the single member LLC.

State LLC laws have never differentiated between a limited liability company that has one member and one that has multiple members when it comes to liability protection.  It is well recognized that every LLC provides a layer of protection stating that owners are not personally liable for business liabilities merely because they are owners.  This is known as forward liability protection.

However, an LLC in most states also offers what is known as reverse liability protection or charging order protection.  This protection basically states that if a member is personally sued for a non-business related obligation and is found liable, the creditors cannot take full ownership of the member’s LLC interest in the LLC.  The creditor’s rights are limited to the economic interests.  In effect, this allows the member to retain the control he had in the LLC business.

The philosophy behind the charging order is not really to give protection to the liable member but to protect other owners of the LLC from business disruption and problems.  They should not fall victim to one member’s personal liabilities by having to deal with an unknown creditor coming in and affecting the business by having management or voting rights.

Now this reasoning does not really apply in a single member LLC context because there are no other members to protect.  A well known bankruptcy court has nullified charging order protection in a single member LLC in the context of a bankruptcy.  While conservative legal practitioners interpreted this ruling to mean there is no longer charging order protection for a single member LLC, the ruling technically applied in only a bankruptcy context.

However, this Florida case addresses the matter in a non-bankruptcy circumstance and so its conclusions will have significant ramifications and applicability in the general area of LLC protection.

More details can be found at this link:

http://www.wmitchell.edu/news/articles/default.asp?articleId=11766&story=Professor-Kleinberger-files-brief-in-landmark-Florida-single-member-LLC-asset-protection-case

PODCAST:

I recently put together a short audio recording for a group of entrepreneurs that wanted to know if their limited liability company entities needed an LLC Operating Agreement and if so, what this document accomplishes for their LLC busineses.

Listen to this 3 minute recording and you will get these answers and essential information about what you need to properly customize your LLC operating agreement.

This is a pretty popular question asked by existing corporation businesses.  The LLC is a much simpler entity to maintain and it offers a lot more flexibility when it comes to structuring ownership and management of a business.

Some states directly address this question. In these states the laws actually have a method for converting an existing corporation in that state into an LLC.  This is usually done with the preparation and submission of certain filing documents with the state corporation agency.  The specific details are outlined in these legal provisions so in order to do this properly, please consult a local attorney.

If there is no LLC conversion in your state, then there are a few other ways to accomplish this.  The first one is to form an LLC and then merge the corporation into the new limited liability company.  The merger process is addressed in the corporate and LLC statutes.  This process can get technical so it is always advised to get the help of a business lawyer.

Another option for how to become a LLC from a corporation is to simply create a limited liability company and transfer all the business assets from the existing corporation to the newly created legal entity LLC.

In any case, when you are switching legal entities for an existing business, there is going to be a transition process.

The LLC laws do not require that a limited liability corporation have LLC officers so they are not strictly required in order to have a valid LLC.

HOWEVER, I alwasy recommend that every LLC have at least the officer roles of President and Secretary.  This is because many third parties are going to look for these traditional officer roles when determining who has the authority to enter into business contracts and transactions.

Now,  a member of a member managed LLC could sign as a “Member” or “Managing Member” and this would be legally sufficient but the problem is that the other party may be confomfortable with this.  They are used to seeing a traditional officer sign contracts- the President in a small company or a Vice President in a larger one.

Even banks, look for Presidents and Treasurers or CFOs to be noted on authority documents.  Also, many times a government entity or other party may ask for the Secretary to certify a certain statement or filing.

Instead of having to deal with having to explain your authority structure for your limited liability corporation, just appoint these officers in your LLC Operating Agreement and move on with your business.  Believe me, appointing officers is easy and will result in you avoiding delays later.

One of the helpful features of a company LLC is that you can separate the management of the business from the owners.  This is different from sole proprietorships and general partnerships.

Now, the limited liability company does allow a similar structure and gives limited liability – this is the member managed structure and it means that every member has the authority to manage the day to day of the company and to sign contracts and enter into transactions on behalf of the LLC business.  If you only have one member (single member LLC) or two members and both will be active, this is the simplest structure.

One the other hand, if you do not want one of your members to have this kind of power, you should consider manager managed. This protects both you and the business.

Also, most companies that have more than two or three members will choose manager management as this mimics the corporation management structure.  Here, members by virtue of being a member does not have LLC authority unless they have also been elected to be a manager.

It is an extra layer of management but is extremely helpful when there could be”too many cooks in the kitchen” as a manager managed structure imposes a meeting and approval process so managers act as group similar to the way a Board of Directors operates in a corporation.

The LLC allows you to put in place whatever checks and balances you desire based on your company LLC situation.

Another helpful post can be found here: member managed LLC v. manager managed LLC

Second, is it possible to not be personally liable for that debt after the transfer?

Question #1:  Yes, you can transfer any assets or debt to your LLC. You transfer assets with a document called a Bill of Sale and you assign debt with an assignment of the debt contract and obligation.  The LLC needs to agree to undertake the debt obligation by having its members formally approve this transaction.  The approval should be documented with a written resolution or consent.

Question #2: No.  Once you personally agree to an obligation, you cannot later get rid of that personal obligation by transferring he obligation to an LLC.  You remain liable.  The only way to change this is to get the other party (e.g., the lender or vendor) to agree to take you off as a liable party. In most cases, that party will never agree to this- it just does not make business sense.

The best approach is to create an LLC early and have your limited liability company be the contracting party or the borrowing entity from the beginning.  Please note that many banks will not lend money to a brand new LLC with no operating or credit history so you may end up being asked to personally guarantee the loan in any event.  Banks are conservative.  It is still worth your LLC being the borrowing entity (Even with the guarantee) as this is how you begin to establish credit for your LLC business.

Learn more about the limited liability company at The LLC Expert.