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.
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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.
From my recent experience I can tell you that when people are considering what type of entity to create, Oklahoma limited liability companies are vastly outpacing Oklahoma corporations. With the limited liability companies the most common form of entity I see, it seems like a prudent idea to provide some additional material about the limited liability company. The Internal Revenue Service is helpful with this idea in that the IRS provides a basic description of how it classifies entities.
Below is a diagram I created summarizing the IRS’s characterization of a limited liability company:
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.
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.
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?
Have you ever wondered what the different ways you could do business in Oklahoma? That is, if you do not want to be a sole proprietor, what the entities you can create to do business through in Oklahoma?
You need to wonder no longer, below is an entity chart which lists each form of business entity and provides a brief description of what the entity is.
In my previous post, I talked about the different ways an Oklahoma limited liability company can end. Once it has ended, there are several things you need to do to “wind up” up the company.
1. Pay Creditors. Payment, or adequate provision for payment, shall be made to creditors, including to the extent permitted by law, members who are creditors, in satisfaction of liabilities of the limited liability company;
2. Distribution to Members. After creditors are paid, the company can distribute what is left to the members. The first distribution in this category is to members or former members in satisfaction of liabilities for distributions under the Oklahoma Limited Liability Company Act; and then to members and former members first for the return of their contributions and second respecting their membership interests, in proportions in which the members share in distributions.
3. File Articles of Dissolution. Once you have completed the preliminary steps required for winding up the company, you file a document called “Articles of Dissolution” with the Oklahoma Secretary of State.
Have you ever wondered how an Oklahoma limited liability company dies?
Do you think your company might have already experienced one of those circumstances that would mean death for it?
To dissolve or have a dissolution is simply the legal term for the end of the limited liability company.
The dissolution of an Oklahoma limited liability company happens naturally under Oklahoma law when any of these things happens:
1. A natural death. The LLC reaches the age when its Articles of Organization says that it ends (e.g, the Articles provide for a 50-year life and the LLC reaches 50);
2. A prearranged death. An event happens that the LLC operating agreement says means that the company should dissolve;
3. Everyone agrees it should die. All LLC members agree in writing the company should be dissolved.
4. Death from the Court. An Oklahoma court enters an order that says the company is dissolved.
After an LLC is Dissovled, it is then “wound up”. Winding up an LLC is simply another legal term that means taking the actions necessary to close down the company.
Check back here on Friday for a post explaining how to wind up an Oklahoma limited liability company.
What does it mean to have your corporate veil pierced?
The veil of limited liability is the legal protection a person or people get when they form an Oklahoma corporate or limited liability company. The company has a separate legal existence, it can own property, make contracts and generally conduct business.
When you hear the phrase “piercing the veil” that means a court is considering taking the protection you receive from having the corporation or limited liability company. If it happens, all of your personal assets could be at risk.
There are certain things that you, as the business owner, can do to maximize the chances that your shield of limited liability will hold up. Read on to find out the steps. Continue reading →
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