352 Inc. / Digital Marketing / December 12th, 2008

Setting up a Company (Part 2) The Legal Stuff.

So I thought about the type of company Structure that would be the right choice for my new company, and after some research and consultation from my lawyer (David A. Antonelli) I have decided the company structure will be a LLC “Limited Liability Company”.

What is a LLC?

· A limited liability company (abbreviated L.L.C. or LLC), is a hybrid business entity having characteristics of both a corporation (Limited Liability) and a partnership (pass-through income tax). It is often more flexible, the owners have limited liability for the actions and debts of the company, and it is suitable for smaller companies with a single owner.

      · Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.

· A few types of businesses generally cannot be LLCs, such as banks and insurance   companies.

· LLC owners report their share of business profit and loss on their personal tax returns.

· Forming an LLC can help you separate yourself from your business, protecting your personal assets in the event of a judgment against the company. All 50 states and the District of Columbia now recognize this popular business type.

· Owners do not need to be U.S. citizens or permanent residents.

What are the next steps? — Choosing a Name for Your LLC

The name of your LLC must comply with the rules of your state’s LLC division

· The name cannot be the same as the name of another LLC on file with the LLC office.

· The name must end with an LLC designator, such as “Limited Liability Company” or “Limited Company,” or an abbreviation of one of these phrases (such as “LLC,” “L.L.C.,” or “Ltd. Liability Co.”)

· The name cannot include certain words prohibited by the state, such as Bank, Insurance, Corporation or City (state rules differ on which words are prohibited).

· Your state’s LLC office can tell you how to find out whether your proposed name is available for your use.

· Besides following your state’s LLC naming rules, you must make sure your name won’t violate another company’s trademark

To see if your proposed name is unique, you can search Michigan’s name database.

Filing Articles of Organization

· After settling on a name, you must prepare and file “articles of organization” with your state’s LLC filing office. While most states use the term “articles of organization” to refer to the basic document required to create an LLC, some states use the term “certificate of formation” or “certificate of organization.”

· Articles of organization are short, simple documents. Typically, you must provide only your LLC’s name, its address, and sometimes the names of all of the owners — called members. Generally, all of the LLC owners may prepare and sign the articles, or they can appoint just one person to do so.

Registered Agent

· You will probably also be required to list the name and address of a person — usually one of the LLC members — who will act as your LLC’s “registered agent,” or “agent for service of process.” Your agent is the person who will receive legal papers in any future lawsuit involving your LLC.

Creating an LLC Operating Agreement

Even though operating agreements need not be filed with the LLC filing office and are rarely required by state law, it is essential that you create one. In an LLC operating agreement, you set out rules for the ownership and operation of the business (much like a partnership agreement or corporate bylaws). A typical operating agreement includes:

· the members’ percentage interests in the business

· the members’ rights and responsibilities

· the members’ voting power

· how profits and losses will be allocated

· how the LLC will be managed

· rules for holding meetings and taking votes,

· “buy-sell” provisions, which establish rules for what happens if a member wants to sell his or her interest, dies, or becomes disabled.

Licenses and Permits

After you’ve completed the steps described above, your LLC is official. But before you open your doors for business, you need to obtain the licenses and permits that all new businesses must have to operate. These may include a business license (sometimes also referred to as a “tax registration certificate”), a federal employer identification number, a sellers’ permit, or a zoning permit.

Federal Employer Identification Number (EIN)

The EIN is the corporate equivalent to a Social Security Number, EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States for the purposes of identification. When the number is used for identification rather than employment tax reporting, it is usually referred to as a TIN, and when used for the purposes of reporting employment taxes, it is usually referred to as an EIN.https://sa2.www4.irs.gov/modiein/individual/index.jsp .

I have reviewed the Michigan.gov website by myself and it is not really helpful to a person with limited knowledge, I found a bunch of forms but to be honest I am not 100% sure if I need to fill them all out or just some of them, I am assuming that I need to fill out

· 540 – RESERVATION OF NAME
· 701 – ARTICLES OF ORGANIZATION (PROFESSIONAL SERVICE LLC)

DIY Approach

I have reviewed a few of the DIY company set up websites such as…

· www.LegalZoom.com
· www.Incorporate.com
· www.LLC.com

…and to be honest they look fine, and I assume they will do the job, but I want it done right, and I like the feeling of interaction with a real life law professional, so I am working with David A. Antonelli. David is an Attorney at Law, who specializes in business Law. David will verify the correct forms I need to fill out, along with answering any questions that I have when filling them out.

David Antonelli emailed me and offered some important information…

As I mentioned the other day, corporation, partnerships, llc’s and other entity forms are creatures of state government. The decision to pick the state of organization will vary on a case by case basis, considering such things as where the principals & business operations are to be located, tax treatment, regulatory regime, etc. If the entity will conduct business outside its state of organization then, generally, the entity will need to be qualified in such other state(s) as a “foreign corporation”). The decision of where to organize and/or qualify the entity to do business should be discussed with an attorney
(not to give
us more work, but to make sure the principals make good decisions). Initial organization and qualification to do business (as a foreign corporation) is generally achieved by filing “Articles of Organization” (in the case of a LLC), by an “Application for Registration to Transact Business” (for foreign entity registration), or by other similar – type filings. Each state has their own filings.

Once organized, the entity will need to register to do business with the state, identify itself as an employer (if applicable), etc. In Michigan (and I believe in the other states), there is a separate set of forms for this purposes.

A new entity, wherever organized, will also need a Federal Tax Identification Number (or FEIN). This is accomplished by filing with the US Internal Revenue Service.

Other things to consider when setting up a new business include insurance, capital requirements, systems requirements, etc. Decisions about whether the entity will employ persons will also need to be addressed at the time of formation / registration.

Hope this helps you move forward. As you know, the foregoing is no more than a general overview. You should discuss these matters with me before making any decisions, creating a new entity, etc.”

So now I know the correct forms I need to get started with…

Misc MI Business Entity Forms

http://www.michigan.gov/businessstartup/0,1607,7-152-9738_12949—,00.html

Apply for an Employer Identification Number (EIN) Online

http://www.irs.gov/businesses/small/article/0%2C%2Cid%3D102767%2C00.html

… furthermore, without David’s guidance and knowledge I would still be trying to find the correct forms.

Parting note for stage 2

The process of setting up a new company is not easy, I am equating it to developing a custom website, without the proper guidance of a professional that knows exactly what they are doing, you will get lost every quickly, and will most likely over look some items that could come back and haunt you in the future. For this stage I would strongly suggest getting a business lawyer like David Antonelli to help you.

Step 3 “What type of business will I run” is the next step I will encounter, please look out for it.