Administrative documents. The most important administrative document for an LLC is its enterprise agreement. Because LLCs are treated by default as partnerships for federal tax purposes, most standard and modular enterprise agreements are entered into in the form of amended partnership agreements. As such, the standard enterprise agreement contains many provisions whose sole purpose is to address federal partnership income tax issues. Many of the tax provisions of the partnership are not necessary, or even authorized, if the LLC is to be treated as an S capital for federal income tax. Many of these typical LLC operating contract provisions are not permitted when the business is to be taxed as Company S. Companies can enshrine governing bodies in the statutes, such as. B the Board of Directors, which makes recommendations to the Board of Directors, the Audit Committee, the Members` Committee and others. A company must meet regularly, at least once a year, and the schedule and functions of these meetings should be addressed, including the rules on notifications, participation and the number of board members who must be present to form a quorum. Indeed, the circumstances of a company or its business model could change, as could the statutes, which should contain rules for amending the document.
For an LLC, the concept of stocks does not exist. For example, a class of share requirements is defined by considering each member`s rights with respect to the proceeds of distribution and liquidation. These must be identical to those set out in their enterprise agreement. If the operating contract is not pro-rata, as stipulated in p. 1.1361-1 (l) (1), the choice would be closed. An LLC may have more than one category of membership interest (i.e. votes and non-votes), but all members, regardless of their ownership category, must have the same distribution and liquidation rights. Many LLC enterprise agreements are the boiler plate, especially the free documents found on the Internet. However, these documents generally contain the language in its tax portion, as if the LLC were a partnership under federal tax legislation. An LLC with such an enterprise agreement does not have the right to make an S business choice. During a business tax review, the agent always asks to consult the business creation documents. And 5 seconds later, the S choice is not allowed.
Those who try to take a “do it yourself” approach to creating an LLC get exactly what they paid for. Limited liability (CLL) companies should ensure that their enterprise agreement does not contain language contrary to the criteria necessary to choose a small corporate company (S-Corporation).