Once you have successfully formed your limited liability company, it is important that you are aware of the steps you need to take to keep your company in good standing with the Secretary of State and avoid personal liability if legal action is taken against your company. There are several things to be aware of:
Operating Agreements and Membership Certificates
The Operating Agreement vests all management and control of the company in the members or the managers to oversee the day-to-day business operations. The Operating Agreement is flexible and may contemplate only one member, therefore it would need to be amended should you ever desire to expand membership or multiple members. This Agreement sets forth formal processes under which your company must operate, including annual meetings, record keeping, accounting, distributions, allocation of financial losses, gaining or losing members, and dissolution.
The Certificate of Membership serves to further evidence your ownership/membership in the company. The purpose of the Operating Agreement and Certificate of Membership is to demonstrate adherence with certain formalities designed to help assure the limitation of personal liability.
It is important to retain the original executed documents to keep in the records for the company.
Bank Accounts
You should open a bank account in the name of the limited liability company. Often financial institutions may require an executed operating agreement upon opening a business account.
You may use the company’s account to withdraw funds to pay all bills for the LLC and deposit funds earned for services rendered by the LLC. It is imperative to avoid commingling business funds with personal funds. You should never withdraw funds from your company’s account to pay for personal expenses, and vice versa.
Assign Contracts/ Leases to LLC
Often individuals enter contracts in their own capacity prior to establishing and operating under an LLC. Once the LLC is registered with the Secretary of State, it is important to assign all contracts to the LLC to protect yourself and your personal assets from any suits that may arise from the contract.
Keep Accurate Records of Each LLC
In order to continually shield yourself and your personal assets from liabilities that may arise, it is imperative that you maintain complete and accurate records for each company’s financial accounts. This will prevent a court from “piercing the company veil” in the event one of your LLCs gets sued.
By failing to adhere to the formalities discussed above, a court may be inclined to “pierce the veil” and impose personal liability should your company ever get sued. This would defeat the fundamental purpose of establishing and operating under a limited liability company – to protect yourself and your personal assets from liability.
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