What are the Legal Documents you Need to Form Your LLC or C-Corp in the US?
Many e-commerce businesses set up legal entities in the US, in order to facilitate smoother payment processing and payment collection. However, before setting up, there are a number of key legal documents which need to be created and/or filed, in order to set up a business in compliance with applicable laws. Therefore, this week we dive into the essential legal documents required for forming both an LLC (Limited Liability Company) and a C Corporation, along with their significance.
Legal Documents for Forming an LLC:
Articles of Organization (LLCs only): These documents are filed with the state’s Secretary of State office. They outline the basic details of the LLC, such as its name, purpose, registered agent, and management structure.
Operating Agreement (LLCs only): While not always legally required, an Operating Agreement is highly recommended. It outlines the internal workings of the LLC, including ownership percentages, management roles, voting rights, and profit distribution. Having an Operating Agreement helps prevent disputes among members and provides clarity on how the LLC will operate. Furthermore, it is often required to open a bank account, as it defines which individuals have authority to act on behalf of the company.
Financial Documents: Although not a single document, maintaining financial records is crucial. These include accounting records, financial statements, and tax-related documents. Proper financial management ensures compliance with tax laws and helps the LLC make informed business decisions.
Resolutions and Certificates: Though not always required, member and manager resolutions can help codify the business decisions of an LLC, in order to create legally binding decisions and actions of the LLC. These can be used to authorize taking out a loan, or opening a bank account for example.
Legal Documents for Forming a C Corporation:
Articles of Incorporation (Corporations only): Filed with the state, these documents establish the corporation as a legal entity. They include details such as the corporation’s name, purpose, registered agent, and authorized shares of stock. Articles of Incorporation are essential for creating a C Corporation.
Corporate Bylaws (Corporations only): Bylaws outline the internal rules and procedures for the corporation. They cover matters like shareholder meetings, director elections, officer roles, and decision-making processes. Having well-drafted bylaws ensures smooth corporate governance and compliance with legal requirements. Many US States also have certain laws governing corporate meetings, shareholder admissions and who can exercise certain decisions within the corporation. The Bylaws help clarify such rules for a corporation, and bring the corporations business operations in compliance with applicable laws.
Meeting Minutes and Resolutions (Corporations only): Corporations generally should keep minutes of board meetings and resolutions. These documents record major decisions, such as appointing officers, approving contracts, and issuing stock. They serve as evidence of the corporation’s actions and decision-making process.
Stock Certificates (Stock-issuing Corporations only): If the corporation issues shares of stock, stock certificates are issued to shareholders. These certificates represent ownership in the company and provide evidence of ownership rights.
Why Are These Documents Needed?
Legal Compliance: Filing the necessary documents ensures compliance with state and federal laws. Without proper documentation, the business may not be legally recognized.
Clarity and Structure: Operating Agreements (for LLCs) and bylaws (for corporations) provide clear guidelines for how the business will operate, preventing misunderstandings among members or shareholders.
Liability Protection: Properly formed LLCs and C Corporations offer limited liability protection to their owners. This means that personal assets are shielded from business debts and legal claims. The extent of the liability of members, managers and directors can also be clearly defined via the legal documents used to create these business entities.
Investor Confidence: Having well-organized legal documents instills confidence in investors, lenders, and partners. It demonstrates that the business is professionally managed and transparent. It also provides investors with clarity as to how the business functions and is managed. Overall, a clear set of corporate documents creates the impression that the business is managed in an organized, structured and transparent manner.
Remember that specific requirements may vary by state, so it’s essential to consult legal professionals or business advisors when forming an LLC or C Corporation. For further assistance, contact us at info@borderlesscounsel.com to get help from a licensed attorney today! 🌟