LLC

How to Open a Business Account 

Posted on by Alex Kincaid

New business owners often wonder which action items to prioritize when launching a new venture. If you recently started or are about to start a business, one of the most important steps you should take is to open a business bank account that is separate from your personal account. Opening a separate account will lay the foundation for more effective liability management, financial tracking, and tax preparation.

Opening and maintaining a business bank account can provide proof that you are operating your business separately from your personal matters. In other words, having separate accounts will help strengthen your legal liability shield. Of course, the creation of a business account is not itself sufficient to eliminate all legal risks (particularly for business owners who are sole proprietors or general partners); nevertheless, it will support the establishment of the business as a separate entity for liability purposes. The following steps should be taken as you prepare to open a business account:

  1. Research different types of business accounts. Banks provide a variety of options for the accounts they offer. Be sure to research the different options available. The key features to keep in mind are monthly fees, interest earned, and minimum balance requirements. You should also examine the bank’s accessibility, convenience, and overall reputation. For example, if you are operating an e-commerce business and have little need for a brick and mortar location for making deposits, an online business account may suffice and afford you the opportunity to enjoy higher annual percentage yields than more traditional banking institutions. Thinking about your unique business objectives will enable you to identify the bank account features that best suit your needs.
  2. Gather your formation documents. When opening a separate business account, banks will require you to provide your business’s formation documents to confirm the legal structure and name of the business. One of these documents may be an Assumed Name Certificate if you have not yet legally created a separate entity or are operating the business under a trade name. If you have formed a limited liability company or a corporation, your formation documents may be your Certificate of Organization or Articles of Incorporation.
  3. Obtain ownership agreements. Ownership agreements like corporate bylaws and company operating agreements shed light on the roles each owner plays in the business. As it pertains to banking, these documents identify which individuals are authorized to sign for and take action with regard to the bank account. Review your ownership agreements to ensure that the company has clearly identified and empowered the right individuals. Further, make sure that the ownership agreements are not in conflict with the provisions of the formation documents.
  4. Obtain an Employer Identification Number. An Employer Identification Number (EIN) is a federal Taxpayer Identification Number provided by the Internal Revenue Service for a business. An EIN identifies you for banking and tax purposes and is required by a bank when opening a business bank account. Most banks will not allow you to open a business account without an EIN unless the account is for a sole proprietorship.

Once you have completed your research and gathered the proper documentation, you should be able to open an account. In some instances, a bank may also require you to obtain and provide evidence of specific business licenses. In such cases, the required licenses must accompany the other documents required.

We Are Here for You 

If you are finding the steps associated with opening a new business overwhelming, our firm can help. We work with business owners to help them navigate the various complexities involved with starting and operating a business.  

Stay in Control: Good LLC Governance

Posted on by Alex Kincaid

The LLC is a popular way to structure a business because it provides personal liability protection to the members– like a corporation does to its shareholders–but without as many administrative formalities. But if you’re an LLC member, don’t let this lull you into complacency.   

As a business owner, you’re responsible for the proper governance of the LLC.  If a conflict arises—either among LLC members or between the LLC and a third party—the governing documents and methods through which the owners govern the LLC may help prevent a conflict from escalating into litigation. Even if a dispute reaches court and you are unable to control the outcome, you can ensure that the LLC presents clear evidence of its intent and purpose by practicing good governance. 

Good LLC governance hinges on four key practices:

  1. Practice good recordkeeping. Document key business decisions. Store records in a secure and fireproof location.Provide members with access to records as required by the LLC’s operating agreement. Keep the list of members and their ownership interests current.  Keep the LLC records organized.
  2. Don’t commingle LLC and member assets.  Keep all member and LLC assets completely separate. The initial contributions that members make to the LLC and any later contributions made after a capital call should be clearly documented as such.  Make sure any loans to the LLC—and the repayment terms—are clearly documented.  All distributions and any advancements to members should be documented as such.  Members who are also employees of the LLC should receive a paycheck from the LLC payroll account like any other employee would. 
  3. Follow the operating agreement.  Do what you say you’re going to do.  Your LLC should have an operating agreement even if your state’s LLC statutes don’t require one.  A well-drafted operating agreement provides a written record of owner expectations in terms of LLC structure and ownership, as well as business operations.  The agreement is an essential tool for keeping the peace among LLC owners and restoring the peace if a disagreement arises.  And, if a dispute arises between the LLC and a third party, the operating agreement may become evidence the fact finder considers to resolve the dispute.
  4. Amend the operating agreement if the LLC is acting inconsistently with it. If the LLC ends up in court and the intent of the LLC or its members is at issue, the fact finder will look at three main factors to make a determination:  the LLC documents (the articles of formation filed with the state, the buy-sell agreement, if any, and the operating agreement), and the actions of the LLC and its members.  When the actions of the members and of the LLC are in sync with the governing documents, a court is more likely to find an intent that corresponds to the original intent of the members when they formed the LLC.  But when the operating agreement says one thing and the LLC or its members behave differently, intent is wide open for interpretation.  If that happens, a court may place greater weight on the actions of the members or LLC and make findings of fact vastly different from what is found in the LLC documents, resulting in a potentially disastrous outcome. 

Practicing good governance of the LLC helps make the intent and purpose of the LLC clear to its members and to outside parties.  And, if a conflict goes to court, good governance provides the judge or jury with a clear picture of what the members intended for the LLC. 

We work closely with business owners to create and implement forward-thinking business planning strategies.  We anticipate what can go wrong and counsel our clients on how to best maintain their businesses so that they are well prepared to weather any storm.

5 Reasons Your Single-Member LLC Needs an Operating Agreement

Posted on by Alex Kincaid

An operating agreement is a contract that controls your LLC’s operations as well as member interaction with each other and with the LLC. You may think that an operating agreement is not necessary for your single-member LLC – after all – why make an agreement with yourself?

Is the Operating Agreement a Legal Requirement?

Most states don’t require an LLC to have an operating agreement. Of the states that do, some require the operating agreement be written while others permit oral agreements. No state requires an LLC to file an operating agreement with the Secretary of State; instead, the operating agreement is kept with other business records. No matter what state you’re in, however, it’s always a good idea to create a formal, written operating agreement—even for a single-member LLC. Here’s why:

REASON 1 – Avoid State-Imposed Default Rules

Without an operating agreement in place, your LLC is bound by the default rules of your state. Most state laws governing LLCs allow the default rules to be overwritten in the LLC’s operating agreement.

REASON 2 – Maintain Control

As the business gains momentum, you may want to hire a manager to take care of the day-to-day business operations so you can shift your attention to business-development opportunities. An operating agreement can define the manager role—designating the authority and compensation and what happens if the manager leaves or competes with the company.

REASON 3 – Keep Business and Personal Identities Separate

An operating agreement helps distinguish the business from the owner for liability purposes. A major benefit of an LLC is that it limits liability going both ways: the LLC protects a member from business liabilities and the business assets from a member’s personal liabilities.
  Without an operating agreement in place, the business may look like a sole proprietorship. If a court doesn’t see your LLC as an entity separate from you, you could lose the liability protection that an LLC offers.

REASON 4 – Clarify Succession

An operating agreement can specify what happens if you die or become unable to run the business. Without this specific provision, your family may have a hard time continuing the business or winding it down.

REASON 5 – Scalability

Successful businesses grow. And growth requires capital. An operating agreement can specify how future investors will be treated.
  If you structure these terms in the operating agreement, the LLC will be better positioned in the investment negotiations.

Let’s Continue this Conversation                    

An operating agreement serves an important role, even for a single-member LLC. The operating agreement puts you in the driver’s seat and enables the LLC to perform its main task—to limit liability.

If you have an operating agreement in place, we’d be happy to review the agreement as well as your business needs to ensure the operating agreement and LLC are in sync.  Or, if your single-member LLC doesn’t have an operating agreement in place, we’ll work with you to craft an appropriate agreement.