Organizing an LLC: First steps

An Oklahoma LLC is formed by filing a document called Articles of Organization with the Oklahoma Secretary of State and paying the required filing fee (currently $100.00). If approved, the Oklahoma Secretary of State will issue the new entity a Certificate of Limited Liability. The next step for many LLCs is to request a taxpayer identification number for the LLC from the Internal Revenue Service. This number is called a Federal Employer Identification Number (FEIN) and is used to identify the LLC to taxing authorities (e.g., on 1099’s). An FEIN is optional for single owner LLCs that will be treated as disregarded entities for tax purposes as the owner can use their Social Security Number as the taxpayer identification number for the LLC. Banks will require either an FEIN or, in the case of a single owner LLC, the owner’s SSN, to open a bank account in the name of the LLC.

LLCs with more than one member (and some single member LLCs) need to have a written operating agreement signed by all members. The operating agreement is the contract between the LLC’s members that governs the operations and management of the LLC. While an LLC can exist without a written operating agreement (in which case the default rules in the Oklahoma Limited Liability Company Act apply), it is highly discouraged to operate a multiple member LLC without a written operating agreement. The LLC’s operating agreement should contain provisions that spell out critical aspects of the relationships between the members and the LLC, including identification of the manager(s) of the LLC, designation of the authority of the manager(s) to act on behalf of the LLC, the transferability of units of the LLC, the method for allocating the LLC’s profit and loss to the members, the process for allowing a member to sell their interest in the LLC (called units), and many other important terms. It is not uncommon for banks to require even single member LLCs to have an operating agreement in order to open an account in the name of the LLC.

Unlike corporations, LLCs are not required to prepare annual minutes or comply with other formalities required of corporations. However, LLCs must file a simple annual certificate with the Oklahoma Secretary of State on or before the LLC’s anniversary date and pay the required fee (currently $25.00). This annual certificate confirms that the LLC is an active business and includes the street address of its principal place of business and an e-mail address. The Secretary of State’s office provides a reminder of the requirement to file the annual certificate electronically via email to the LLCs last known email address of record. It is important to file the annual certificate and pay the required fee or your LLC may become inactive and eventually be subject to cancellation. Cancellation of the LLC could cause the members to lose the LLC’s liability protection, thus potentially subjecting the members’ personal assets to the liabilities of the LLC.
It is also critical that the members of an LLC keep their personal records separate from those of the LLC and that the members never commingle LLC funds with member funds. Failure to respect the legal existence of the LLC separate from that of its members could allow an LLC creditor to “pierce the veil” of the LLC and subject the members’ personal assets to the liabilities of the LLC.