Do It Yourself – LLC Formations
Recently someone posted on a local Facebook site looking for recommendations for an attorney to form a limited liability company for the poster. The initial LLC Formations post got a few recommendations for good local business attorneys. But the post also received lots of advice from folks that told her that she should just go it alone and form the LLC herself.
For a handful of new businesses, following this advice to go it alone might not be bad advice. So long as:
- the new business is going to be a single member limited liability company that is not going to have any employees,
- or the owner is not ever going to have creditor issues,
- or make too much money,
- or need a loan from a bank
- or need a succession plan.
If none of those factors apply, doing it yourself might work out just fine. That’s a whole lot of “ifs” though! The new business owner would be much better off if he or she obtained legal advice BEFORE running into day-to-day issues.
One of the advantages of forming an LLC is the fact that limited liability companies are created by a contract and many aspects of the day to day and the organization of the business can be determined by that contract – called the Operating Agreement. If you do not create an LLC Operating Agreement, you will be subject to your state’s default LLC rules. These are one “size fits all” rules, not tailored to the wants and needs of your business. For many of the same reasons an individual should draft a Will rather than relying on the laws of intestate succession, most business owners shouldn’t rely on the LLC Act providing the default Operating Agreement for the company. Adopting an Operating Agreement will allow you to choose what rules you want to apply to your LLC, such as who can become a member, whether the interests can be transferred to a creditor and who is authorized to manage and operate the LLC if something happens to the managing member or manager. If an LLC does not adopt its own Operating Agreement, the state default rules will apply. You want the ability to shape your rules to fit your goals for your business, you will want your own Operating Agreement.
And, it’s best not to wait to see if the state default rules will work for you. Once an LLC member’s membership interests are being foreclosed upon and a third party creditor is taking over the management of the limited liability company, or there is no succession plan and the LLC has to go through probate, there is little an attorney can do to stop that. But, these are the types of scenarios that a good attorney drafted Operating Agreement can try to avoid.