Documents Necessary when Forming
It’s no secret that limited liability companies (LLCs) are a
very popular form of entity.
I’ve noticed, however, that many people misunderstand the
documents necessary when forming an LLC. So, what
documents are necessary?
Well, the lawyer answer is of course that it depends on the
purpose of the entity and whether it is going to be a Single-
Member LLC or a Multi- Member LLC.
One document is absolutely necessary: Articles of
Organization. Colorado (and I believe all other states)
requires a business to file Articles of Organization with the
Secretary of State to form an LLC.
However, this is usually a bare bones document that provides
for the name of the LLC, principal business address, name
and address of the registered agent, whether the LLC is
manager- managed or member- managed, and the name of
the person causing the articles of organization to be filed
with the secretary of state.
Besides the Articles of Organization, the other documents
that an LLC should have will vary.
This post provides a few general ideas about documents that
you may need when forming either a Single Member LLC or
a Multi- Member LLC.
Single Member LLCs
Initially, as mentioned above, a single member LLC
(“SMLLC”) will need to file articles of organization to create
the entity under state law.
Many attorneys will recommend that the Articles of
Organization is the only document that the SMLLC needs.
If a SMLLC is on a shoestring budget, then I think just the
Articles of Organization will work, provided the company
follows business formalities, such as having a business bank
account and keeping business assets and liabilities separate
from personal assets and liabilities.
Single Member LLCs
To make the importance of following business formalities
more real for the business owner, I typically recommend that
the SMLLC have an operating agreement that addresses
governance policies, succession, death and disability.
By following the written policies in an operating agreement,
I believe the business owner will have a better argument that
the liability protections available to LLCs should be upheld if
challenged in court.
When an LLC has more than one member, it is essential to
have a written operating agreement to memorialize the
agreement between the parties.
The operating agreement should address the rules and
policies that govern the entity, including topics such as
management/decision making, voting rights, distributions,
allocations, employment, sale of interests, tax issues,
liquidation, dispute resolution, death and disability and many
An operating agreement may be sufficient for most LLCs.
However, the members of an LLC may also want any or all of
the following agreements:
Buy- Sell Agreement – the purpose of a buy- sell agreement
is to ensure continuity of ownership and prevent unwanted
parties from becoming owners.
Non- Compete Agreement – this agreement prohibits the
owners from leaving and starting a competing business for a
period of time that must be reasonable in time and
Confidentiality Agreement – this agreement may be incorporated
in the operating agreement or in a separate agreement. It basically
states that all of the company’s proprietary information, such as
customer lists etc. will be kept confidential.
Intellectual Property Agreement – if the company has important
intellectual property to protect, it should have agreements with
employees and contractors that make it clear that the company
owns any IP created for or used in the business.
Employment Contracts – as the company grows and gets more
employees and management personnel it may need agreements
governing the terms of their employment.
The documents necessary when forming an LLC will vary
depending on the LLC’s business and these documents
become more important and greater in number if it’s a
Multi- Member LLC.