Important Considerations When Forming an LLC

If you’re forming a business and considering using the limited liability corporation (LLC) structure, you’ll need to be aware of the Georgia Limited Liability Act. This act sets out rules for the formation and operation of LLCs in Georgia, including management, finances, admission of members, dissociation and dissolution, and more. 

Formation of an LLC

Your LLC is actually formed by filing articles of organization with the Georgia Secretary of State. The articles must include the name of the LLC, which by law has to be different from that of any other business in Georgia. The Secretary of State maintains an online database of corporation and LLC names, which you can search. 

LLCs are a popular business entity type because they offer the limited liability benefits of a corporation, meaning members, or owners, may only be liable for legal issues and debts up to the amount of their investment in the LLC. At the same time, LLCs are generally taxed like partnerships. An LLC’s income is passed through to members, who then pay taxes at their personal income tax rate. The LLC isn’t separately taxed.

Operating Agreements and Management 

The LLC’s operating agreement governs how it is operated. Two important parts of the agreement are management and member exit provisions. 

Management

LLCs can be member or manager managed. If member managed, members make all decisions as to the affairs of the LLC.

If manager managed, the manager, or managers, operate essentially as a CEO or board. The operating agreement should spell out the rights and authority of the manager to run the business and affairs of the LLC. The agreement also usually stipulates the limited rights of members in managing the LLC. A manager management structure works well for an LLC that has many members.

Exit Strategy 

When becoming an LLC member, one usually doesn’t like to think of being ousted from membership or seeing the entity dissolve. Yet, exit provisions should be included in any LLC operating agreement from the beginning.

A member or owner might exit due to death, divorce, disability, bad behavior, or several other reasons. Exit strategies should account for both disassociation and buyout. When a member is disassociated from an LLC, that person loses their voting and management rights, but unless specifically spelled out might still maintain economic rights.

Buyout provisions lay down the procedures for buying out a dissociated member and remove the member’s economic rights. The amount of the buyout might be tied to the reason for disassociation. For example, a disabled member might be bought out at 100%, but the operating agreement might stipulate that a member ousted for bad behavior can be bought out at a discount.

The Georgia Limited Liability Act is complex and includes many chapters, articles, and sections. When setting up an LLC, it’s best to work with a business attorney who can not only help you write the best operating agreement, but also advise you on establishing other key documents for your business, such as vendor contracts, employment contracts, and non-disclosure and other agreements to protect intellectual property.

Your InPrime Legal Team

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Disclaimer: This blog should not be used as a substitute for competent legal advice from one of our licensed attorneys