WHAT FORMS DO YOU NEED FOR YOUR LLC FORMATION PRACTICE?

By , July 10, 2010 1:23 pm

What forms do you need for your LLC formation practice?

I addressed this question in my March 23, 2010 post in this blog, but since that date, my thinking about the question has significantly evolved.  My current thinking is that you need five distinct types of forms.  These forms are listed below.  I’ll be grateful for any comments you may have on this list.

1)     General-purpose model operating agreements.  You need general-purpose model operating agreements.  These model agreements should be designed to provide a basis for planning, negotiating and drafting all of the basic types of operating agreements that any LLC formation client is likely to need for any purpose (except the purposes addressed in the special-purpose model operating agreements discussed below).

The best way to organize general-purpose model operating agreements is on the basis of their three main structural features—namely, (i) their ownership structure, (ii) their management structure and (iii) their federal income tax structure.  If you organize them this way, you will find that there are 10 main types of LLCs (click here for a list of these types); and you will find that you need 28 specific general-purpose model operating agreements.  For a list of these 28 model agreements, click here.

In the summary and detailed tables of contents after the title page in each general-purpose model operating agreement and in the captions of its provisions, each of these agreements should identify all principal legal and tax issues relevant to the type of LLC for which the agreement is designed.  The tables of contents of the agreement should provide you with a comprehensive issues checklist in handling LLC formations. The provisions of each model agreement should provide you with optimal starting-points for resolving each of these issues.

For an example of a general-purpose model operating agreement for multi-member LLCs, click on the “forms” button of the top navigation bar of this blog and then click on the button marked “Form 6.2.”

2)     Special-purpose model operating agreements.  Depending on your practice, you probably need one or more types of special-purpose model operating agreements.  These may include, for example, model agreements for (i) husband-wife LLCs; (ii) Delaware series LLCs; (iii) promoter-controlled and investor-controlled investment funds; and (iv) LLCs whose members want short-form operating agreements.

3)     Model non-tax plug-in provisions.  You need a wide variety of model non-tax plug-in provisions that you can copy and paste into operating agreements you are drafting on the basis of general-purpose or special-purpose model operating agreements.  The purpose of these plug-in provisions is to supplement or replace the standard non-tax provisions in these model agreements when these provisions don’t meet your clients’ needs.  Examples of model non-tax plug-in provisions are (i) right-of-first-offer and right-of first-refusal provisions; (ii) drag-along and tag-along provisions; (iii) provisions to eliminate fiduciary duties in Delaware LLC agreements; and (iv) securities law compliance provisions.

4)    Model tax plug-in provisions.  You need various model tax plug-in provisions.  These are individual model provisions or sets of related model provisions on federal and state tax issues that you can copy and paste into general- and special-purpose model operating agreements to meet special tax needs of your clients.  Model tax plug-in provisions include, for example, (i) sets of plug-in provisions under IRC §§ 704(b) and 704(c)(1)(A); (ii) plug-in provisions under Prop. Reg. § 1.1402(a)-2 that will enable your clients to avoid the Self-Employment Tax on their shares of LLC income; and (iii) plug-in provisions for tax matters partners.

5)     Miscellaneous forms.  You need miscellaneous forms, including (i) forms for articles of organization or similar documents to file with relevant state officials to create LLCs; (ii) bylaws for use by LLCs with corporate management structures; and (iii) documents, in the form of attachments to operating agreements, which set forth the rights and duties of managing members and management committees.

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