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The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

What Is an LLC Operating Agreement? [with templates]
By Brett Melson Tuesday, April 12, 2016

what is an llc operating agreement? [with templates]

 

 

What is an LLC Operating Agreement? 

 

The Delaware legislature created the limited liability company (LLC) in such a way as to allow the LLC's members the freedom to contract with one another upon whatever terms they deem are best suited to their company.

 

In a corporation, for example, Delaware law requires certain terms to be included in the corporation’s constituent document and mandates certain provisions related to corporate governance are followed; it also limits (to some extent) the ability of the parties involved to modify certain terms relating to voting or fiduciary obligations.

 

In an LLC, however, the members are free to organize the LLC in any manner they choose, with near-total freedom to define the relationship among the members as well as the terms governing the operation, oversight and maintenance of the LLC.

 

The fundamental terms of an LLC’s ownership, operation and management are set forth in its LLC Operating Agreement.

 

So what is an LLC Operating Agreement? It can be a written document or merely an oral understanding. A written agreement, however, is typically used because it memorializes the understanding and agreements between the members which, in the event of a future dispute or misunderstanding (or the unfortunate possibility of litigation), is invaluable protection for all parties involved.

 

Although each LLC Operating Agreement is different, it should generally set forth certain fundamental terms, such as:

 

  • The ownership percentage of each member
  • The manner in which profits, losses and expenses are allocated
  • The authority of members to bind the LLC and participate in day-to-day management
  • The voting rights of each member in making key decisions
  • The circumstances under which a member may withdraw from the LLC, and the way in which that member’s economic interest is calculated upon withdrawal
  • The ability of a member to sell or pledge his/her interest to a third party
  • The impact of the death or disability of a member
  • The circumstances and terms under which new members may be admitted
  • The circumstances under which the LLC will be liquidated, and the priority of claims among the members upon liquidation
  • Indemnification rights (if any) in the event the LLC (or a member) is sued in connection with the LLC's business

 

What Are The Benefits of a Delaware LLC?

 

There are numerous benefits to a Delaware LLC. One of the most popular aspects is that the state of Delaware does not require a Delaware LLC's Operating Agreement to be filed or made public, as some other states do; thus your Delaware LLC's Operating Agreement remains completely private among you and your fellow LLC members.

 

A Delaware LLC is typically formed by filing a Certificate of Formation with the state, which includes only the name of the LLC and the office of the Registered Agent, which allows all the members of your LLC to remain private. 

 

Feel free to utilize this free template of a single member LLC Operating Agreement.

Here is a free template for a multi-member LLC Operating Agreement.

 

 

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Do I Need a Business License? | Business License Info
By Meri Weiss Monday, April 11, 2016

Do I need a business license?If you are about to launch a start-up, you have no doubt asked yourself, “Do I need a business license?”

No matter what type of business you own—whether it’s in a physical storefront or based online—and regardless if it’s a small or large company, you are going to need to obtain and maintain a business license (possibly more than one). Business licenses can be complicated, so we have put together a blog that addresses the often-confusing topic of business licenses.

What is a business license?

  • A business license is a mandatory approval or permit issued by a government agency that authorizes a business to operate within a specific jurisdiction. This license is often an additional requirement beyond the registration of a business at the state level. Whether a business is required to have a specific license depends on such factors as the nature of the business, the types of products it sells and the location of the business.

What is the point of a business license?

  • Business licenses hold businesses accountable for their actions and behavior as well as protect the health and safety of the public.
  • Professional licenses indicate the level of expertise a particular professional possesses.
  • Sales tax licenses are required for the sale of taxable goods.
  • The government uses licenses to track revenue for tax purposes.

Who needs a business license?

  • Almost every company with an income stream will be required to have some type of business license, permit or registration in order to operate legally, in full compliance with government regulations.

Where can I get a business license?

  • Business licenses are issued by all levels of government and, depending on what type of goods you plan to sell, you may need to obtain a business license on federal, state and/or local levels.
  • Certain businesses are required to obtain a federal business license, such as the sale of alcohol or firearms.
  • State business licenses differ from state to state, so be sure to find out what your state requirements may be.

How do I get a business license?

  • First, determine where your business will be operating—which state, county and city.
  • You can find your state and city regulations on the SBA website.
  • Make sure you have your company’s Federal Tax ID Number (EIN).
  • Every type of business has a specific business code, so know your code when you apply for your license.
  • Check to see if, in addition to a business license, you may need a permit, as certain types of businesses need both.
  • Be sure to pay the filing fee, which can range from $50 to $400 or more.
  • You may need to get fingerprinted, depending on the type of business and the state.

What happens if I do not obtain a business license?

  • Your business could be liable for significant damages and/or penalties.
  • Neither you nor your company will be protected by local, state or federal ordinances.
  • You will likely have to pay a fine.
  • Your business may be temporarily or permanently shut down.
  • Your company’s reputation may be tarnished.
  • You could be held personally liable.

What happens after I have my business license?

  • Many business licenses require annual or biannual renewal.
  • Businesses should rely on their own internal compliance personnel in order to stay on top of business license renewals. Although most licensing jurisdictions do send renewal notices, companies should not rely on these reminders.

Our partnership with LicenseLogix makes it easy for new and existing businesses to obtain all the licenses and permits your business may need. Their Client License Information Center, or CLiC, makes it easy for you to manage the business license renewal process, thus avoiding late charges and fines.   

Keep in mind that it is not just new businesses that have to think about business licenses. Existing businesses must be mindful as well. Many situations could cause your company to fall out of compliance. The following are circumstances in which the requirements of your existing business license could change, and your company could need to update its business license:

  • Your company began transacting business in another city, county of state
  • Your company hired a new employee
  • Your company began selling a new product or service
  • You opened an additional business location
  • You closed a business location

Business license compliance is an important aspect of owning a company, but it doesn’t have to be stressful or tedious, however, some governmental agencies are easier to deal with and more efficient than others.

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New Annual Registered Agent Fee Due Date Policy
By Amy Fountain Tuesday, April 5, 2016

new annual registered agent fee due date policyWhen you form a Delaware company through Harvard Business Services, Inc., we want to ensure you receive the most value for your money—thus we believe in providing each Delaware company we form with a full year of Registered Agent service.

Up until now, the exact date on which your company was formed became your anniversary date; it also served as the due date for your annual Registered Agent Fee. For clients who have formed several business entities with us, however, it has become inconvenient to keep track of the exact day the month each company is due. Therefore we have listened to client feedback and updated our Registered Agent Fee due date policy.

Effective immediately, we are implementing a streamlined approach to the Registered Agent Fee due date process. Rather than pay your Registered Agent Fee on the exact anniversary day of your company’s formation, the Fee will now be due on the 28th day of the month in which your company was formed.

For example, let’s say we form your company March 18, 2016. The next time your Registered Agent Fee will be due is March 28th of next year. All that changes is the day of the month.

If you file a change of agent with Harvard Business Services, Inc., your annual Registered Agent Fee due date will be the 28th day of the same month the following year.

It will be easier for all of us to have one consistent monthly due date for all Delaware entities. Hopefully, this change will also alleviate any internal accounting issues our clients with multiple Delaware entities may be experiencing.

Our Promise Remains: Your annual registered agent fee is fixed at $50 per year for the life of your company. This has not changed.

And one more thing: don’t forget, you can pay your annual Registered Agent Fee any time you’d like via our website.

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Change of Ownership For an LLC Is Easy in Delaware
By Brett Melson Sunday, April 3, 2016

change of ownership for an llc Change of ownership for an LLC can be complicated and requires costly amendments in most U.S. states.

 

However, not in the state of Delaware. The only document required to be filed in Delaware to create an LLC is the Certificate of Formation.

 

Unlike other states, Delaware requires very little information to be made public in order to form an LLC.

 

The Certificate of Formation filed with the Delaware Secretary of State is required to contain only three items:

  • the name of the Delaware LLC
  • the name and address of the Delaware LLC's registered office 
  • the name of the LLC's Registered Agent in Delaware

 

Information such as the member(s) name, address and the percentage of the business owned is not required to be provided to the state of Delaware and therefore is not part of the public record. This information is kept on file internally within the LLC's Operating Agreement.

 

The LLC's Operating Agreement can be altered as needed by the members, without filing the changes with the state of Delaware. Some of the typical changes people make are the removal or addition of a member or the change in percentage of a member's ownership.

 

The LLC's Operating Agreement must be amended to reflect that a new member is now part of the LLC, or to reflect the removal of a member, and all current members must sign the newly amended Operating Agreement, but you are not required to file the amended Operating Agreement with the state of Delaware.

 

Free LLC Operating Agreement Templates

 

Since there is minimal information on the Certificate of Formation filed with the state of Delaware, this information does not need to be filed or recorded with the state.

 

Your Delaware Registered Agent does not need to be informed of the change either; we only need to know if there is a change to the company's communications contact, address or phone number. So, unlike many other states, change of ownership for an LLC can be done quickly, easily and without incurring any fees.

 

These free Operating Agreement templates, for a single-member LLC, a member-managed or manager-managed LLC, or a series LLC, can be utilized as is or customized for your LLC.

 

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Compare Business Entities: Corporation vs LLC
By HBS , Meri Weiss Tuesday, March 29, 2016

Compare Business Entities: Corporation vs LLC

Please see our Corporation vs LLC page for more detailed information.

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