A document stating the initial members or managers of an LLC. In an LLC, when the company is formed, a Certificate of Formation is filed naming the authorized person. However there is little connection between this individual and the members or managers of the company, other than a cover letter to the company. To provide for more of a “paper trail” and “bridge” from the Authorized Person (also known as an Organizer) to the initial members or managers, the authorized person can sign a Statement of Organizer setting forth the name of the initial members or managers. To make this even more official, if requested by the customer, this document can also be notarized and even certified by the Secretary of State as being an authentic Delaware notary in what is called a “Re-Notary”. If used for international business dealings this “Re Notary” can even be apostilled or legalized alongside the Certificate of Formation.
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A business that is mostly or completely owned by another business (see “Umbrella Organization”).
(Also referred to as an S Election) – The election by stockholders of a company or LLC Members with one or more U.S. citizens or permanent residents that results in the passing-through of a Corporation’s taxable income to the stockholders. Trusts, Corporations and non-U.S. citizens cannot be stockholders or LLC Members without disqualifying the S Election.
Formerly known as “Business Trusts”, statutory trusts are designed for financing purposes to hold a single significant asset, such as a cruise ship, aircraft or office tower.
Legal requirements that certain contracts be in writing, for example contracts for sale of real estate and sale of goods over $500. The Delaware LLC Act has waived these requirements for a Delaware LLC operating agreement.
Required by lenders in special financing transactions, this is a Single Member LLC operating agreement which contains a second non-equity special member (an unrelated party) whose primary function is to “spring into action” should the single member go into bankruptcy, or other related triggers. The LLC operating agreement restricts the sole-equity member’s ability the LLC should the single member be unable to operate the entity. This is often required to be the form of entity, should the lender repackage or bundle the loan subject to certain restrictions to be sold as a marketable security. The primary purpose is to avoid a the assets of the LLC from becoming part of its member’s bankruptcy estate. These LLCs are usually used in loans over $4 million. They also require attorney opinion letters from counsel where the property is located and in the state of incorporation. Lenders also require these be Delaware LLCs.
An individually-owned business that is not incorporated or is a one-Member LLC. The owner (“sole proprietor”) is held 100% personally liable for all business debts and expenses unless they form an LLC.
1. This literally means a “one owner” business. Usually this refers to an unincorporated business. The operator/owner is held fully liable for all business debts and expenses of the company.
2. In the context of taxation, it can refer to a single member LLC taxed as a sole proprietorship, where the income and expenses go on the individual’s Schedule C of his Form 1040 tax return. Although this often referred to as a “disregarded entity” that is only for tax purposes. For liability protection a single member LLC is still regarded as an entity separate from its member.
An LLC with one owner. also known as a member.
While most LLCs have general purposes that allow the LLC to engage in any purpose authorized by law, some LLCs used for special investor financing, including securitized transactions, have a very specific purpose, such as to just own and manage one defined property. Often lender requirements also put other restrictions on the LLC, such as limitations on the ability of the member to amend the agreement without the lender’s consent.
This is a company that is active in the eyes of the state, but does not actually carry out business. One purpose is to sell a company with a history to new businesses.
This is an agreement signed by stockholders to place restrictions on the transfer of shares. The purpose of this agreement is to retain rights and control of the company with the original stockholders so as to discourage unwanted third parties from obtaining voting-shares and to stipulate the terms and conditions for the valuation and purchase of shares among the stockholders.
Notifying a person that he or she has been served with a legal proceeding or order of the court in a civil or criminal matter. This process includes a summons, complaint, warrant, citation, or subpoena.
A unique LLC with unlimited asset segregation potential. Under one LLC, you can set up numerous “series” owning separate assets. According to the statute, 6 Del. C. Section 18-215, “the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series shall be enforceable against the assets of such series only, and not against the assets of the company generally or any other series thereof”, as long as separate records are kept for each “series”. Delaware is one of a few states that currently have a series LLC provision.
The Series LLC has been around only since 1997 and has recently become popular as a way to create internal firewalls within one company to protect individual assets from creditors of other assets in the same LLC. This has been used as incubators for businesses and as asset holding vehicles for everything from residential real estate holdings to cargo containers. This entity is not for the novice since the record keeping requirements are much more rigorous than that of a traditional LLC.
Section of Delaware General Corporation Law that allows members or shareholders to demand books and records from a business that they have an ownership interest in. There are various requirements for this, such as the request having proper purpose.
Allows for the immediate deduction of 100% of the cost of certain defined assets (generally office equipment) and up to the dollar limit defined (as of publication: $105,000) in the Internal Revenue Code. This prevents assets from having to be written off by depreciation slowly during their projected useful life.
An officer position in a corporation. The secretary usually is responsible for record keeping, for example recording the minutes of the annual meeting and attesting to official corporate business.
An LLC can be established and funded with your qualified IRA savings through a Self-Directed IRA. This is unusual because traditionally all IRAs could only be invested in certain financial accounts with institutions. It is now possible to fund your LLC with your IRA. However the LLC agreement must meet certain criteria. Additionally, there must be a qualified administrator named to make sure the funds are being used properly.
The election by members of a company with one or more U.S. citizens or permanent residents that results in the passing-through of a Corporation’s taxable income or losses to the stockholders. The advantage of the S Election for Corporations is that profits distributed as S-Corporation dividends are treated as passive income not subject to employment taxes if reasonable compensation has been paid to stockholders performing services for the S-Corporation.
A Corporation that has elected to be taxed under subchapter-S of the IRS Code (and therefore not taxed under subchapter-C) by filing a Form 2553 tax election within 75 days of incorporating or 75 days from the beginning of the calendar year. The election is limited to Corporations or LLCs with one class of shareholders (or two classes where the only difference between the classes is voting a non-voting) with no more than 100 natural person stockholders (no entities or trusts, all of whom are US citizens or green card holders). Every calendar year the corporation must file an 1120S return and therefore it is not required by law to pay income tax and thus passes its taxable income or losses through to its shareholders as reported on a Form K-1 each year. An LLC can also be taxed as an S-corporation by filing a 2553 election under what is called the “check-the-box” regulations.