The Limited Liability Company (LLC) is now one of the most popular business structures among smaller organizations. While allowing business owners to remain free from a great deal of the formalities imposed on other types of businesses, it still provides limited liability protection for its owners (members).

LLCs are also eligible for “pass-through” taxation, which means that the company’s income taxes are only reflected on each owner’s personal tax return, not at the business level.

LLCs are organized under an Operating Agreement, a contract between members specifying how it will be run and how costs and profits will be split between them.

Delaware LLCs at a glance:

NEVER MISS A FILING DEADLINE AGAIN. REMAIN COMPLIANT AND MAINTAIN YOUR PRIVACY.

A registered agent’s primary role is to receive any formal correspondence between government agencies and your business. GIA registered agent service is designed to provide organizations of all types and sizes with an affordable and professional option to fulfill their registered agent requirements. Our registered agent services are available in all 50 states.

What is the Form 2553?

If your business is a C Corporation but you have decided that you would rather file taxes as an S Corporation, you need to notify the IRS in advance by filing the appropriate paperwork. IRS Form 2553, “Election By a Small Business Corporation,” is required to be filed with the IRS to switch a C Corporation to S Corporation status for purposes of federal taxation.

Why is Form 2553 so Important?

It helps you reduce your tax liability. Instead of paying a corporate tax rate of up to 35 percent, Form 2553 turns your company into a “pass through entity” for tax purposes. This means the earnings from your company pass through directly to you (the owner) and any other shareholders, and you only have to pay taxes on the income at your own individual income tax rates.

What is an Operating Agreement?

An LLC operating agreement is a legal document that outlines the rules and regulations enacted by a limited liability company to provide a framework for its operation and management.

This key document provides structure during decision-making and when inevitable business-related conflicts happen between members. The operating agreement describes the ins and outs of meetings, elections of managers and officers, filling vacancies, notices, types and duties of officers, committees, assessments, and other routine items and tasks. The operating agreement can be customized for the specific needs of the members.

While operating agreements may not be mandatory for an LLC to file with their Secretary of State, some states still require an LLC to create an operating agreement for their own recordkeeping. Unlike the Articles of Organization, operating agreements are not recorded in the public records. However, they are still significant legal documents.

While an LLC’s initial filing document known as the Articles of Organization defines the basic structure of an LLC, the operating agreement is used to further define the structure of the company.

Basics of an Operating Agreement

Each operating agreement is specific to each organization, but the basic components are as follows:

• Company organization, purpose, and location
• Capital contributions and interest
• Distribution of profits and losses
• Management and membership powers, duties, and voting rights
• Member and manager compensation
• Bookkeeping responsibilities
• Transfer of interest
• Dissolution
• Miscellaneous information regarding members, managers, or contributions

This document can contain any provisions relating to the business of the LLC, the conduct of its affairs, and the rights and powers of the managing members, managers, officers, and employees as long as it doesn’t conflict with state laws or the Articles of Organization.

Creating an operating agreement can be complex—but we’re happy to help. When you hire Active Filings, we include an operating agreement in our LLC formation packages.

Corporate Bylaws – What’s Required?

Corporate Bylaws are the rules and regulations enacted by an association or a corporation to provide a framework for its operation and management. Bylaws provide for meetings, elections of a board of directors and officers, filling vacancies, notices, types and duties of officers, committees, assessments and other routine conduct. Corporate Bylaws are, in effect a contract among members, and must be formally adopted and/or amended.

While the Articles of Incorporation define the basic structure of the corporation, the bylaws are used to further define this structure. Corporate Bylaws can contain any provisions not inconsistent with state law or the Articles, relating to the business of the corporation, the conduct of its affairs, and the rights and powers of the shareholders, directors, officers and employees.

Bylaws – unlike the Articles of Incorporation – are not recorded in the public records. Each set of bylaws will be specific to each organization, but the basic components of corporate bylaws are as follows:

• Statement of Purpose: Pretty straightforward here. What does your business do? Why are you in business? How will your corporation reach it’s goals? Basically your statement of purpose describes what you do and why you do it.
• Members: Here you’ll address the types of members your corporation wishes to have, as well as their voting rights and any procedures for adding new members to the corporation.
• Board of Directors: Corporate bylaws commonly include information that specifies, for example, the number of directors the corporation has, how they will be elected, their qualification, and the length of their terms. It can also specify when, where, and how your board of directors can call and conduct meetings, and voting requirements.
• Shareholders’ Meetings: One of the most important requirements a corporation has is its annual shareholder meeting. This bylaw will outline exactly when shareholders are entitled to receive notice with regards to shareholder meetings, and where and on what date meetings will take place.
• Stock and Dividends: This is where you will codify into your corporate law, exactly who will be entitled to receive stock in the company, the different classes of stock that will be issued and to whom, and how the transfers of stock shall be made.
• Officers: Officers are generally employees of a corporation, although they don’t always have to be. Your bylaws should include provisions for electing and appointing officers, and to specify whether or not these officers will be board members and what responsibilities they will have.
• Indemnification: To indemnify someone is to absolve that person from responsibility for damage or loss arising from a transaction. You’ll most likely want to include a provision that protects your corporation’s directors and officers from any liability that they may be exposed to because of their association with the corporation.
• Amendments: The only thing that stays the same is change, and in this case, adding an amendments provision to your corporate bylaws will allow your corporation to review and change any necessary rules or regulations as challenges arise.

What are Organizational Resolutions?

Also known as corporate resolutions, organizational resolutions are certain actions related to the organization and incorporation of a company that are taken or adopted by the Board of Directors during the corporation’s first meeting. For example, common resolutions include appointing officers, authorizing the issuance of shares to the stockholders, and adopting the bylaws.

When are Organizational Resolutions completed?

After you file the Articles of Incorporation and create the corporate bylaws, a common next step is to hold the company’s first meeting, which officially adopts the bylaws and executes the organizational resolutions. The organizational resolutions complete the organization of the company.

Basic List of Organizational Resolutions

These common actions are taken in the form of resolutions, stated below:

• Approve agent for service of process (or registered agent)
• Approve bylaws
• Appoint directors
• Elect officers
• Adopt corporate seal
• Adopt stock certificates
• Select corporate tax year
• Establish principal executive office
• Secure federal Employer Identification Numbers (EINs) and state tax IDs
• Select time(s) for Board of Directors meetings
• Select time for annual meeting of shareholders
• Authorize treasurer to open and use accounts
• Authorize corporate account and designation of authorized signer
• Pay expenses of incorporation
• Ensure securities law compliance