Oklahoma limited liability company

The legal building blocks of a successful Oklahoma business

When building a house, at least a well-built house, you need a solid foundation, good materials, and someone who knows what they are doing to assemble all the pieces.

A similar principle applies when building an Oklahoma business: You need to have solid component parts and you need to know how the parts fit together.

This post is intended to discuss the items that an Oklahoma business needs to address to build a foundation for success. Of course, as part of building your new business, you need to assemble a support team, a concept I talk about in this blog post.

The beginning: Organizational Structure
This means fundamental formation: for a corporation, it means filing your certificate of incorporation with the Oklahoma Secretary of State and for a limited liability company it means filing your articles of organization with the Oklahoma Secretary of State.

Your business’s constitution
Similar to how a country might have a constitution or a city might have a charter, Oklahoma corporations and limited liability companies have a central governing document: for limited liability companies it is an operating agreement and for a corporation it is bylaws.

Ensuring your business standing is “good”
Once you form your company and enact your constitution, you need to ensure you are taking the very simple steps necessary to remain in good standing with the State of Oklahoma:

If you are a corporation, you need to file a franchise tax return each year (see more about that —> here);

If you are a limited liability company you need to file an annual report (see more about that —> here)

The people running the business
For a corporation, it goes, from the top down, shareholders, members of the board of directors, and officers run the corporation on a day-to-day basis.

For a limited liability company, members (the owners) choose the manager(s) who run the day-to-day operations of the company (unless the LLC is “member-managed).

Note: If you are starting a business with at least one other person, it would be a good idea to consider my blog post The questions you need to ask when starting an Oklahoma business with another person

Contracts
At the core of a successful business are the relationships it has with its employees, customers, and products and services. For those relationships to be clear and operate efficiently, you need written contracts. Among other things, a written contract defines the terms of your relationship, the money, and how the relationship ends.

Intellectual Property
Your business’s intellectual property is an asset that is often overlooked or disregarded. What is intellectual property? In practical terms, intellectual property is things like your business’s name, its logo, its marketing slogan as well as private and proprietary information that provides your business with an edge over its competitors. How do you protect your intellectual property? You use the items listed below:

Trade Name
Trademark
Patent
Copyright
Trade Secret

Intellectual property has value just like more tangible assets such as inventory, furniture and fixture and buildings.

Finance
As a means of addressing finances and simply making a wise decision, get a CPA involved with your business. Not just for doing your taxes, but also for advising you on tax strategy and ensuring you have a sound accounting structure in place. And if you need financing, consider reading my article I started an Oklahoma business, I need more money . . . what do I do?

Taxes
This category is simple yet eminently important. Obviously, you need to calculate your taxes, file your returns and pay any tax due (unless you are an Oklahoma limited liability company). The CPA I referenced above should be helpful in all things tax, both Oklahoma tax and the IRS.

There will probably be other legal-related issues, both that unfortunately, you can anticipate and those legal issues that you cannot anticipate. This post is a great start, and I am available to help with all of your Oklahoma business’s legal issues. Feel free to email me: sjr@shawnjroberts.com

What is an Oklahoma limited liability company operating agreement?

You have probably heard of limited liability companies or LLCs as they are often referred to.

You may not have heard about the key constitutional document for an Oklahoma LLC: the Operating Agreement.

An operating agreement is an agreement by the members of the LLC as to how the company will be run. Among other things, the operating agreement controls:

1. Relations among the members as members and between the members and the limited liability company;
2. The rights and duties under the Oklahoma Limited Liability Company Act of a person in the capacity of manager;
3. The activities of the company and the conduct of those activities; and
4. The means and conditions for amending the operating agreement.

Title 18 O.S. section 2012.2

You can think of an LLC operating agreement as the manual for operating your Oklahoma limited liability company.

Why does the Oklahoma Secretary of State show my LLC as terminated or expired?

The Summer Solstice Seen from GOES East from NOAA Satellites

The Oklahoma Secretary of State is the record keeper for Oklahoma limited liability companies.

You start with the OK SOS to form an Oklahoma limited liability company and the OK SOS tracks your entity through its. One piece of data you can find when searching for a limited liability company on the OK SOS website is the entity’s status. Status is usually expressed as either:

Active

Termination

Suspended

As you might guess, you want your company to be active and you need to fix your LLC’s status if it is terminated or suspended.

Why does an Oklahoma LLC’s status show terminated or suspended?
Here is what the Oklahoma Secretary of State says:

It means the LLC or LP is not in good standing with the State of Oklahoma due to a late Annual Certificate. Annual Certificates are due on the formation date of the entity each year, and a 60 days grace period is given to file them. After 60 days if there has been no Annual Certificate filed, the entity becomes inactive and not in good standing.

https://www.sos.ok.gov/business/faq.aspx

How do you get your LLC back in good standing?
I provide the steps to back to good standing with the Oklahoma Secretary of State in this Blog Post.

What is Oklahoma individual liability and why does it matter?

Diplomatic Security Service from Flickr User BSAC_Mock Dignitary Protection

We are talking about Oklahoma asset protection. That is, protecting your assets from being taken by a creditor or another party that has a judgment against you, individually.

Fortifying your assets
One way to fortify yourself and protect your assets is to do business through an Oklahoma entity. When I say entity, I am generally talking about an Oklahoma limited liability company or an Oklahoma corporation.

You form the entity, and then you use the entity to conduct business. For example, I have clients who own rental properties and they have created at least one LLC to own the rental property.

Explanation of the Mechanics
Here is how the protection works:

For a rental property, the entity enters into a lease with a tenant. If for some reason, the property generates liability for the owner and the tenant or another party trying to recover against the owner, the creditor has to start by recovering against the entity rather than against the person who formed the entity.

The Wall of Separation
That means there is a wall of separation between what you own individually, for example, if your home and your cars, and what your business owns, which is the rental property. While there are some circumstances where a creditor could reach your individual assets, it is much more difficult when the creditor has to pierce through an entity that is out front. For more information about piercing through the corporate veil in Oklahoma, consider – 5 Steps to prevent your Oklahoma corporate veil from being pierced

If, in my rental home example above, the owner owns the property in his or her own name and lease is the property in his or her own name then the owner is going to be liable if there is liability created which means the owner is putting all of its assets at risk. There’s no reason to have this happen using an entity to do business and if you need help getting that entity set up or getting started please reach out to me.

5 Steps to prevent your Oklahoma corporate veil from being pierced

How an Oklahoma Limited Liability Company is taxed

One of the factors to consider when choosing whether to do business as an Oklahoma corporation or Oklahoma limited liability company is how the new entity will be taxed. There are several options for both corporations and limited liability companies. Below is a diagram explaining how an Oklahoma limited liability company is taxed.

The source for this information is the Internal Revenue Service website, specifically this page.

The Oklahoma series LLC is not only for real estate but also for . . .

You probably know that an Oklahoma series limited liability company provides excellent protection for owning multiple tracts of real properties (think rental homes).

But did you know that the Oklahoma series limited liability company may very well work with other non-real property assets and forms of doing business such as:

◊High value medical & business equipment.

For example, a doctor or dentist who owns medical imaging equipment valued six figures, where such equipment can (in remote scenarios) generate substantial liability. Think diagnostic imaging where the machine doesn’t deliver a reliable image . . .

◊Separate divisions of a company

A business owner might use an Oklahoma series LLC to segment a large business in separate departments or divisions. In this context, the terms “department” or “division” don’t have a particular legal meaning but rather describe business segments.

◊Separate product lines offered by a company

You can create a department (or a division – they mean similar things and are sometimes used interchangeably) without filing or drafting any legal agreement at all. However, some companies appreciate the formal separation that accompanies separate series. You can do the same thing for product lines, employee teams, projects, business locations, and other business components.

◊Equity Compensation Program within a business

As a spinoff of the separate product lines topic about, this use might work in a business with multiple divisions. With each division segregated into a separate series, the LLC can give the key employees of each series some sort of equity interest tied to that series only rather than equity interests in the entity as a whole. This rewards employees in productive divisions and protects them from the potential downside of other divisions.

The Oklahoma law series LLC law allows real property and other assets to be owned by a series. This means that the possible series LLC uses listed above are but a few items. I touched on this topic briefly in this post on the practical uses of an Oklahoma series limited liability company.

. . . . . . By the way, in listing these potential additional uses for an Oklahoma series LLC I am not endorsing any use as the correct use for you or your property. Before you implement a series LLC, take the time to talk with an attorney to discuss the plusses and minuses based on your specific set of circumstances.

If I start an additional business do I need a new company?

Have you ever wondered why some companies that have multiple lines of business have multiple legal entities to operate them?

Why does one company have a holding company that owns 14 different Oklahoma limited limited liability companies?

The answer may be important to your Oklahoma company as you expand and grow.

The General Philosophy

My general philosophy on adding new business is if it is a business that is distinct from the existing business and/or presents new types of liability, the new line of business should be operated under a new legal entity.

Primary Purpose

The primary purpose of this legal separation is to attempt to keep the legal liabilities created by each business separate from the other business. For example, if a separate line of business such as roofing is sued due to an employee accident, if the new business is legally separate from the existing business, it much harder for the plaintiff in the lawsuit to involve the existing business in any way.

This is an advancement of the concept of using a legal entity (Oklahoma corporation or Oklahoma LLC) to separate your business from your yourself. A sole proprietor typically incorporates so that the business is operated legally separate from themselves. That is, the legal entity creates a wall of separation between the business activity and the owner’s individual assets. A claim against the business should not normally lead to the liability of the owner.

Key consideration

One thing to consider is whether you new business is simply a additional “line of business” or whether it is a new business with its primary tie to the existing business being common ownership.

A new line of business or new business unit may not require a new legal entity. While a new business very often requires the creation of a new legal entity.

Example from your friend in the the digital age

Cox Enterprises is an example of this type of legal separation for distinct business. Cox Entrprises is diversified media conglamorate that owns newspapers, dealertrack technologies, television stations, radio stations, Cox Communications, Manheim Auctions, Autotrader, Kelley Blue Book,Savings.com and Valpak. Many of the seperate lines of business are owned by separate entities including Cox Media Group, Inc., Cox Advanced Services Oklahoma, L.L.C. and Cox Cable Authorized Retailer, Inc.

A practical example

A business owner could create a new entity for the new business and still use the existing business for branding purposes. You could do this through a basic licensing agreement between your existing entity and the new entity and a shared services agreement. Additionally, you set up a holding company as the entity on top and then operate each business under entities owned by the holding company. You would create two new entities to carry out this plan and then set up one as Entity 1, in which you would own 100%, and then Entity 2 and Entity 3, which would each be owned 100% by Entity 1.

Questions to ask yourself

A couple of questions to ask yourself to determine whether you need a new legal entity:

How will new business be connected to the existing business?
Will new business use the same name as the existing business?
What other ties will the new business have to the existing business?

The Oklahoma Series LLC Part 2 – practical uses

In part 1 of the Series LLC I discussed what the series LLC is and how it works. This post provides information on the tax implications and practical uses for the series LLC.

III. Tax Implications

As you know, federal tax law rather than state law determines the existence of an entity for tax purposes. In many cases, the members of each series of an LLC will be identical. In such cases, it is fairly certain that the series LLC as a whole will be treated as a single tax entity for federal tax purposes. On the other hand, if the series of an LLC has the same members, or identical or similar membership rights, or similar business purposes, each series may be treated as a separate LLC for income tax purposes.

In both cases, however, there should be only one filing with a state’s secretary of state for the LLC (rather than for the individual series). Furthermore, in most cases, there should be only one state franchise (or similar) tax filing.

IV. Practical Uses of the Series LLC

The most obvious use for the series LLC is to hold multiple parcels of real property in liability-segregated cells. Owners of small commercial or residential properties may find the series LLC particularly appealing. This is especially true in states with high minimum franchise taxes. Forming and maintaining a number of separate LLCs may cost several thousand dollars in the year of formation and several thousand dollars each subsequent year. The use of a series LLC with each property held by a separate series may save several thousand dollars in startup costs and another several thousand dollars a year in ongoing administrative and state tax costs.

Another use for the series LLC is to facilitate an equity compensation program in a business with multiple divisions. With each division segregated into a separate series, the LLC can give the key employees of each series some sort of equity interest tied to that series only rather than equity interests in the entity as a whole. This rewards employees at productive divisions and protects them from the potential downside of other divisions.

Finally, a series LLC could be used to facilitate the combination of business operations of distinct businesses. For example, rather than undertaking a traditional merger, two companies wishing to join forces might form a series LLC, with each company contributing its assets to a separate series, or with the owners of each company contributing their ownership interests to a separate series. The LLC agreement and series agreements could be drafted to determine exactly which rights and responsibilities are shared and which are maintained separately. The series LLC provides a unique and very flexible framework for this sort of business combination.

The Oklahoma Series LLC – Part 1: one LLC with the protection of 50 LLCs

The Oklahoma series LLC is a relatively new way for the more efficient and effective management of assets. You can create one limited liability company and get the benefit of having multiple limited liability companies. Below is a post 1 of 2 explaining the Oklahoma serial LLC and how you might be able to use it.

I. The Legal Reason

Segregating “dangerous” assets and businesses into separate entities away from other assets, especially “safe” assets, is always a good idea from an asset protection point of view. For example, an individual who owns a gas station and a rental home should not own both within the same entity.

In the best case scenario, every distinct business or major business asset should be segregated into a different limited liability entity. Ideally, someone with 25 rental properties would have 25 separate LLCs, one for each property. However, this is not always practical because of administrative costs and government fees that must be paid for each LLC. What can a business owner in this situation do to protect their assets from liabilities unrelated to those assets in a cost-effective way?

II. The Oklahoma Series LLC

A. The Act
The series LLC may provide an answer. The Oklahoma LLC Act (the “Act”) provides for the creation of separate protected “cells” (‘series’) within one limited liability “container” (the series LLC) without the need to create separate entities, thus avoiding the inefficiencies associated with multiple related entities.

The Act provides that the liabilities of a particular series are enforceable only against the assets of that series. The Act also provides that classes or groups of members can be established, having whatever rights the LLC agreement says they have. The combination of these two provisions allows a series to function in many ways as a separate entity for practical purposes. The series LLC concept is similar in function to segregated portfolio companies and protected cell companies designed for the mutual fund and captive insurance industries in a number of offshore and onshore jurisdictions.

The Act allows an LLC agreement to designate series of members, managers or LLC interests that have separate rights and duties with respect to specific LLC property or obligations. So, each series can be tied to specific assets and can also have different members and managers.

Most importantly, the Act provides that debts, liabilities and obligations incurred, contracted for or otherwise existing with respect to a particular series are enforceable against that series only, and not against the assets of the LLC generally or any other series of the LLC.

B. Obtaining Protection
In order to obtain inter-series liability protection, each series must be treated separately and the public must be put on notice of the liability limitation by the inclusion of the series limitations in the LLC’s Articles of Organization filed with the Oklahoma Secretary of State. Records must be kept for each series and the assets of each series must be held and accounted for separately. The separate holding and accounting required may be in the LLC’s records, so long as separate and distinct records are maintained for each series.

Check out Part 2 of this series on “series” right here.