LLCs and Corporate Formalities
Corporate formalities are the official records and activities required of businesses in order to maintain their corporate status. While corporations have stricter formalities by which they must abide, limited liability companies (LLCs) must also follow certain procedures. If you have any questions about forming or operating your LLC, it is important that you speak with a business lawyer in College Station.
Types of Formalities
Corporate formalities take three forms: record keeping, annual reporting, and meetings. These formalities must be met, and if they are not, a lawsuit could occur which “pierces the corporate veil” of protection from liability. Both LLCs and corporations share the feature of such protection for its members from personal liability for debts, so it should be clear why it is vital that these formalities be maintained.
Formalities Required of LLCs
While members of an LLC may lose this protection from liability by engaging in wrongful conduct such as fraud, failure to maintain required formalities is perhaps more common. One of the most important of such formalities is the holding of meetings. It should be noted that meetings are not a statutory requirement for LLCs if unanimous written consent of the members is obtained. Still, these meetings serve an important function. At meetings managers are elected, dividends are issued, new members are added, and the company's short- and medium-term goals are discussed.
Other formalities that an LLC must meet are as follows:
- The creation and implementation of an operating agreement. This defines the roles of members, outlines the operating goals of the company, and specifies tax rules.
- The maintaining of a stock ledger which lists all those who own shares in the company, along with their contact information.
- A description of company assets
- An explanation of debts and guarantees against such debts
- The maintaining of company bank accounts. It is very important that these accounts are separate from the personal accounts of members. Commingling of personal assets with company assets can lead to serious problems.
- Having a business name
- Filing of state and federal taxes when they are due
If You Are Considering Establishing an LLC
Whether you are planning to create an LLC or are operating an existing one, it is important that you work with a College Station business attorney. Call Peterson Law Group today to arrange a consultation at 979-703-7014 or 936-337-4681.