It is conventional wisdom that forming a Limited Liability Company (“LLC”) in Minnesota is not hard. Furthermore, a lot of people believe that, in order to form an LLC, the only (and the easiest) thing to do is to file the Articles of Organizations – a one-page fill-in form prepared by the Secretary of State – and that is it. I have seen dozens of examples where entrepreneurs would file the Article of Organization believing they are completely protected and they do not to pursue anything further, saving money on a legal advice.
In fact, however, the issue is much more complex. Even assuming that the LLC is the correct entity form for the business in question (a discussion which requires substantial legal analysis and is a topic for another article), organizing an LLC is process which has its owns legal complexities and requires proper documentation in order to achieve the results that most organizers are striving for – limited liability and protection of one’s business interests. A business owner who is negligent in organizing an LLC is likely to pay a hefty penalty in the future, including a possibility of losing his business altogether.
This article begins a series of articles that I am writing on the topic of LLC formation in Minnesota. It is important to point out this series merely provides a general educational background on this topic and you should consult a Minnesota business lawyer regarding your specific legal situation.
In this essay, I would like to outline the minimum essential documentation one needs for the purposes of organizing an LLC. This is a suggestive list of documents that most Twin Cities business lawyers adopt. Notice, this article does not discuss the process of LLC formation (which is the topic of another article, later in this series).
The LLC is formed by filing the Articles of Organization with the Minnesota Secretary of State. The Articles become effective on filing and payment of the $160 (current as of the year 2010) filing fee. The Office of the Secretary of State would then issue a Certificate of Organization to the LLC.
It is important to understand that the one-page, fill-in form provided by the Secretary of State Office is not the only possible form. In fact, this form merely incorporates the minimum required provisions in order to form the LLC. The Articles may incorporate a lot more information, stating the rules on various issues such as cumulative voting, preemptive rights, a governor’s liability, et cetera. It is important to consult your business attorney in deciding what the Articles of Organization should include.
2. Bylaws (or Operating Agreement)
In most cases, it is important for the LLC to adopt Bylaws (also known as “Operating Agreement”). Bylaws may contain provisions relating to the management of the LLC, as long as these provisions are not inconsistent with Minnesota law and/or the Articles of Organization.
3. Member Control Agreement
As long as specific requirements are satisfied, Minnesota law allows the organizers of the LLC to adopt a Member Control Agreement. The most crucial aspects of this Agreement are that it permits the organizers to adopt a different governance structure for the LLC and over-rule many default provisions of the Minnesota Limited Liability Company Act, including on such crucial issues as: terms and conditions for transfer of membership interests, voting quorum, valuation of membership interests, and so on.
The recent trend among Minneapolis business lawyers and St. Paul business lawyers is to combine the Bylaws and the Member Control Agreement into one “Member Control and Operating Agreement”.
LLC formation can be a complex process, which deserves a lot more consideration than merely filling out a simple form with minimum formation requirements. Your specific situation may require filing an expended Articles of Organization. Then, in order for the new LLC to operate, you need to describe how it will be managed in the Bylaws. Moreover, the Minnesota Limited Liability Company Act contains many default provisions which may interfere with proper functioning of your business. Therefore, a Member Control Agreement may be necessary for greater flexibility in and proper management of your business.
It is crucially important to consult a Minnesota business lawyer while forming the LLC. Only a business attorney will be able to properly analyze your situation, help you file correct Articles of Organization, and draft the necessary Bylaws and/or Member Control Agreement.
Sherayzen Law Office can help you navigate these complex issues of entity choice and LLC formation as well as draft all of the necessary paperwork, including customized Bylaws and Member Control Agreements.