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Forming LLCs

A limited liability company, abbreviated as an “LLC”, can be used for many different purposes.  Whether used in connection with operating a business or holding title to assets (such as real estate, vehicles, bank accounts, etc.), LLCs are commonly used to limit one’s personal liability, i.e., for protecting one’s personal assets from others.  They are one of many types of business organizations to choose from.

LLCs as business entitles are typically more flexible than other types of business organizations and perhaps lend their owners greater credibility as compared with operating outside of a formal business structure.  LLCs provide a choice of tax regime, are less rigid and require less paperwork than corporations, allow various types of “persons” under the law to be owners (known as “members”), and also allow for just a single member.  For small business owners and entrepreneurs, flexibility and simplicity are often two very important goals when forming a new company.  Also important is credibility with potential customers, clients, vendors, etc., which might be more easily earned through an LLC than a single individual, or a group of small individuals, operating on his, her, or their own via a sole proprietorship or a partnership.  LLCs for these reasons, among others, are very popular today.

LLCs are creatures of state law.  Kansas has different laws than Missouri as it relates to LLCs.  One does not form an LLC at the federal level.  An LLC is organized under state law via the Kansas Secretary of State’s Office in the state of Kansas and the Missouri Secretary of State’s Office in the state of Missouri.  The state of Kansas requires an annual report to be filed for Kansas LLCs (which requires an annual filing fee to be paid along with it), but the state of Missouri does not have such a requirement.  Other differences exist between the states as well that should be taken into account.

A frequently-recommended or sometimes required component of forming an LLC is preparing and executing an operating agreement.  This is a very important internal document (not filed with the state) that governs the operations of the business, the rights and duties of the members, ownership interests, the management of the company, capital requirements, allocation of profits and losses, provisions relating to tax elections, voting rights, distributions, restrictions on transfer of membership interests, dissolution and winding up, as well as other matters.

Operating agreements for single-member LLCs are typically less complex, and certainly subject to less negotiation, than operating agreements for multi-member LLCs.  Limited liability companies that do not have well-drafted operating agreements in place may encounter serious problems at a later point either internally between or amongst members or externally with respect to creditors or plaintiffs.

Are operating agreements required?  This is a question that arises on occasion, sometimes by those who are not persuaded by recommendations alone.  The answer is that operating agreements are required within certain jurisdictions, such as the state of Missouri.  While the Missouri statute on point, RSMo § 347.081, affords an LLC’s member or members discretion as to the contents or provisions of the operating agreement, it is clear as to the mandatory nature of the agreement itself: “The member or members of a limited liability company shall adopt an operating agreement[.]”  In addition to or apart from statutory requirements, some banks or lenders may “require” a company to have an operating agreement before opening a business bank account or in the course of applying for a loan.

This law firm has formed LLCs for numerous purposes and types of businesses, including (whether one or more) virtual assistant services, information technology and information security consulting, business consulting, general retail, lawn and landscape, photography, social media, engineering, and residential and commercial painting, and for holding title to residential real estate, agricultural real estate, industrial real estate, and commercial real estate.  This law firm has also assisted with the preparation, review, negotiation, and/or amendment of LLC operating agreements for a significant amount of companies in the Kansas City metropolitan area and beyond.

If you would like to make an appointment with Kincaid Business & Entrepreneurial Law, LLC ® regarding a business law matter, specifically forming an LLC, please feel free to conveniently schedule with us here.  You may also wish to read more about associated areas of law, trademark law, drafting or reviewing business contracts, and real estate law, on our website.  For content about some of the difficulties or complexities encountered when forming an LLC, you may wish to read the following blog articles: “Forming an LLC Is Not Easy: Business Names & Trademark Law and “Why Owning an LLC in Your Own Name May Be a Big Mistake.”