Limited Liability Company
Should my operating agreement or shareholders agreement with my co-owners provide for unanimous voting for any operational issues?
Unanimous voting rights can bog down the governance of any enterprise, especially where there are several owners. Sometimes it’s necessary when, say, you have only two owners and they both want to be sure to be included in every decision. Typically, though, unless required by law, you’ll want to avoid unanimous voting requirements, opting instead [...]
Voting rights in your entity are an important element of its governance. Sometimes a minority investor, or group of investors, may want the right to vote (or veto) certain business decisions, even though they don’t have the equity to sway a vote. Nevertheless, you may want to give them certain veto rights as part of [...]
Capitalization can mean a couple of things. At first it usually refers to the contributions of money or property that the owners (shareholders or members) have contributed to the business, their “capital contributions”. Later on, or as a result, or in anticipation of such contributions, it may refer to a capitalization chart or table, which will set out each owner and their percentage interest in the entity.
A CEO is the Chief Executive Officer. This is the person responsible for over-seeing all of the day-to-day activities of the corporation. Sometimes LLCs have CEOs. The CEO is the face of the company, and so larger businesses tend to hire a CEO that has appeal to the public to encourage investment in the business, or to attract new customers. The CEO, when it comes to extraordinary decisions, seeks and takes direction from the board of directors. The CEO can be, but need not be, a shareholder.
Corporate secretaries are the unsung heroes in the officer world. They are responsible for the grunt work of the corporation or LLC, making sure i’s are dotted, t’s crossed, taking corporate minutes, and frequently interacting with the business’s lawyer to make sure paperwork and corporate housekeeping are all in order. In a very small business, the corporate secretary is frequently the same person as the CFO and the CEO. In larger businesses, you’ll want to try to make the CEO and corporate secretary two different people, since there may be occasion when refinancing or issuing shares to a corporate investor will require that the secretary attest to the identity of the CEO, which gets awkward when it’s the same person. The position of Secretary is required under California law.
The position of Chief Operating Officer is not required under state law, but businesses that are growing, or intend to grow, will almost always have one. The COO is responsible for the day-to-day of the business, and usually reports to the CEO. And so I know I said that that’s the CEO’s job; in larger businesses, those responsibilities are handed over to the COO, so that the CEO has more time to develop new strategies to grow the business.
Corporations under most state laws, including California, require that the shareholders and the board of directors of a corporation hold an annual meeting. Some LLC statutes require it as well, though not in California. Those meetings are opportunities to vote on annual issues, like elections of officers and review of last year’s financials. In very small businesses, these meetings may be memorialized by consents . . . you don’t have to hold an actual meeting with yourself (unless that’s your thing and you’re looking for a “legit” reason to deduct a trip to Hawaii for a shareholder’s meeting – that won’t really work, by the way).
In very lay terms, a K-1 is the partnership equivalent of an employee’s W-2 or a contractor’s 1099. Because a partnership doesn’t generally pay taxes of its own, it issues a form to each of its partners, telling the partners what each of them needs to put on his/her/its own tax return. LLCs taxed as a partnership (the default for multiple-member LLCs) issue K-1s. For more on forming partnerships, here's an article. Or, if you prefer to be entertained, here's a video.
Being a member in an LLC is similar to being a shareholder in a corporation, or simply being an owner in a business. The members of an LLC are its owners, and typically if there's more than one, they will sign an Operating Agreement which is a contract governing their rights and duties with respect to each other and the LLC.
Well, if I was your mother, I’d say yes, that’s very complicated, and please just pay him for services rendered. But, as your lawyer, adding him is not that complicated. However, the result is that you’ve now turned what was essentially a sole proprietorship into a partnership, requiring tax returns, fiduciary duties, and ideally, a written partnership agreement for when you want to show your boyfriend the door.