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Once your Delaware LLC is formed, the next crucial step is to create an LLC Operating Agreement.
An LLC Operating Agreement helps to identify the company's members, establish ownership of the LLC and determine how the company will be run on a daily basis.
However, it can be difficult to figure out where to start. Below, you will find several common options for a Delaware LLC business structure.
It is a smart idea to form an LLC to manage an enterprise or to hold an asset; it protects both you and the LLC. Some people wonder, "Why form a company to own or manage something by yourself?"
By forming an LLC in Delaware, you are creating an entity with rights and protections of its own, sometimes over and above the rights you possess as an individual.
Asset protection is quite important when you own assets inside an LLC instead of personally owning them. That's because the LLC and the member (owner) are two separate entities.
Therefore, if you are sued and a judgment is levied against you personally, the judgment creditor cannot take the assets owned directly by the LLC.
The reverse is also true. If someone sues your LLC and a judgment is levied against the LLC, the creditor cannot seek assets that are not owned by the LLC.
The single-member LLC also provides a good way for you to purchase assets without revealing your personal identity. For example, if you are the owner of a single-member LLC, you can contract to purchase a piece of real estate without revealing your personal identity to the seller.
Then, once you have purchased the property and titled it in the name of your Delaware LLC, no one will be able to search public records in order to connect you with the LLC.
On the other hand, if you finance the purchase with a bank loan, the bank will require your personal information be revealed to them, but the state of Delaware will never require members to place their personal name and information on the public record in order to form or maintain a Delaware LLC, unlike many other states.
There are a variety of Operating Agreements that can potentially govern a single-member LLC. In your LLC Operating Agreement, you may, but are not required to, include language that excludes others from ever becoming members.
An Operating Agreement is not required in a single-member LLC, but most attorneys recommend you have one that is signed and dated by the primary member (owner), just as a formality.
We are happy to share this template of a single member LLC Operating Agreement.
If the LLC Operating Agreement mentions nothing about the number of members, then the law assumes there is at least one member and you are free to add as many other members as the LLC desires, as there is no limit on the number of members you may have in a Delaware LLC.
The LLC Operating Agreement determines who manages your LLC. Unless it is otherwise stated in the Operating Agreement, a Delaware LLC is managed by its members.
However, by applying the Delaware freedom of contract advantage to your situation, you may expressly define which members manage which aspects of the company as you desire.
In a family business set up as an LLC, for example, the Operating Agreement may specify that certain named members be in charge of one division or one aspect of the company, while other named members are responsible for other divisions or aspects.
For example, some situations might call for one member to have ultimate authority over bank accounts, or the ultimate power to bind the company by contracting with others.
The Operating Agreement may also provide for the establishment of committees or groups of members with specific rights or management responsibilities.
In order for the LLC to be manager-managed, the Operating Agreement should specifically state the responsibilities of the manager and a process for selecting, hiring, firing, replacing and managing the performance of the manager.
Powers, responsibilities, privileges and priorities may be specifically granted to the manager, or specifically denied, as you determine.
Again, under the Delaware freedom of contract precept, you may expressly define which members manage which aspects of the company; this means your LLC manager may be elected by a committee of your LLC members by naming a single member as manager in the Operating Agreement, or by any other method you can devise.
One of the most sophisticated structures for an LLC is the multi-class structure.
The multi-class Delaware LLC is an entity structure where the power, ownership and recompense can be distributed unevenly among separate classes of the members, for whatever reason, as defined by a written contract among all members.
The specific provisions that outline limits on power, responsibility and governance, and all other pertinent LLC details, can be devised by the founder(s) of the LLC according to the Delaware LLC freedom of contract precept.
In order to take advantage of this feature of the Delaware LLC, you must specify in the LLC Operating Agreement each class you wish to remain separate, and delineate each class' individual rights and privileges, including any denied rights and privileges.
You may have one or more classes of membership; there are no limits on the number of classes.
The multi-class LLC structure can be a very popular estate planning tool. Learn more about using a Delaware LLC for estate planning.
Delaware series LLCs are used to manage multiple properties or assets under one LLC, and a series LLC separates each property as though each asset were a separate entity.
If this is what you're looking for, the Delaware series LLC is worth your consideration. The series LLC is a sophisticated LLC business structure in which the Certificate of Formation and the Operating Agreement state the details of the various series your company authorizes.
Since all assets are treated like separate entities, each asset can have its own separate ownership, accounting records, debts and liabilities without affecting the other series.
We can guide you through the process of filing a series LLC; we can also assist you with the creation of your series LLC Operating Agreement, starting with a free series LLC Operating Agreement template.
[Please note: As of August 2019, Delaware has amended its Series LLC law. All information in this article pertains to what is now known as a Protected Series LLC, as opposed to the newly introduced Registered Series LLC.]Form a Delaware LLC Now
The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, startups and general business topics.
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