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Whether you cheer for KU or K-State during March Madness, you can take advantage of the numerous benefits provided by forming a Kansas LLC.

HOW TO MAKE YOUR SMALL BUSINESS INTO A KANSAS LLC

First: Name Your Business

Kansas LLCs must have names that contain a corporate designator. Options for designators are “limited liability company,” “limited company,” “LLC,” or “LC.” They must also be distinguishable on the Secretary of State’s records from the name of any other entity that is formed in Kansas or authorized to transact business in Kansas.

Second: File Articles of Organization

To form your LLC with the Secretary of State, you must file articles of organization. These must include the name of your LLC, the address of the registered office, the name and address of the registered agent, and any other provisions that the organizer wants to include. These are submitted to the Secretary of State with a $150 application and recording fee.

Third: Execute an Operating Agreement

Kansas code does not explicitly require that LLCs have an operating agreement. It is defined as any agreement, either written or oral, that governs member relations and the conduct of business for the LLC. It is recommended that you have all members of the LLC execute a written operating agreement.

Last: Maintaining Active Status

EIN: If you will use your Kansas LLC to hire employees, or if you have multiple members of your LLC, then you will need to obtain an Employer Identification Number, either directly from the I.R.S. or through an incorporation service.

Annual Report: Kansas LLCs must file a confidential annual report with the Kansas Secretary of State with a $40 filing fee. The only information required on this report is the name of the LLC and the names and addresses of all members who own greater than 5% of the LLC’s capital.

WHY FORM AN LLC IN KANSAS?

Kansas Has a Growing Economy

Each year, Kansas forms over 7,000 new LLCs.  Kansas has over 44,000 active LLCs.

Advantages of Forming a Kansas LLC

The Kansas LLC Act expressly states its purpose is to give “maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.”

The Act gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses.  An LLC’s members can specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than their portion of capital contributions.  Section 17-76,101 states: “The profits and losses of a limited liability company shall be allocated among the members, and among classes or groups of members, in the manner provided in an operating agreement.”  This gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.

In addition, an LLC agreement may establish classes of membership interests with different rights, powers, and duties, including voting and non-voting interests.  Under section 17-7687, “[a]n operating agreement may provide for classes or groups of members having such relative rights, powers and duties as the operating agreement may provide, and may make provision for the future creation in the manner provided in the operating agreement of additional classes or groups of members having such relative rights, powers and duties as may from time to time be established, including rights, powers and duties senior to existing classes and groups of members.”  This facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests.

Duration

The Kansas LLC Act provides for an LLC’s unlimited life.  Section 17-76,116 states that every limited liability company has a perpetual existence unless its articles of organization provide for a limited term.  An LLC’s existence can therefore outlive its members’ lifetimes.

Dealing with Business Partners

The Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties by giving members and managers contractual freedom to “opt out” of duties by including provisions in an LLC agreement that modify them.  The Act provides that to the extent a member or manager has fiduciary duties to the LLC, other members, or other managers, “[t]he member’s or manager’s or other person’s duties and liabilities may be expanded or restricted by provisions in an operating agreement.”

Preventing Unwanted Business Partners

The Kansas LLC Act allows members to protect their control of an LLC.  An LLC agreement may prohibit members from assigning their membership interests.  But if an LLC agreement does not prohibit it, an assignment does not dissolve the LLC or entitle the assignee to participate in management or to become a member.  Instead, the assignee may receive only the distributions and allocations of profit and loss to which the assignor would have been entitled, and all the non-assigning members must consent to the assignee becoming a member.

Creditors Only Get Passive Rights, Not Control Rights

Section 17-76,113 provides that if a judgment creditor of a member obtains a charging order against the member’s interest, “the judgment creditor has only the rights of an assignee.”  That is, a charging order requires the LLC to pay the judgment creditor any distribution that would otherwise be paid to the judgment debtor.  But the judgment creditor does not have a right to participate in management.  In addition, § 17-76,113 is a judgment creditor’s “sole and exclusive remedy.”

In addition, the Act states that unless an LLC agreement provides otherwise or all members give written consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated insolvent or bankrupt, or fails to contest a petition seeking his or her reorganization, liquidation, dissolution, or similar relief.  These events are considered “events of bankruptcy.”

Kansas Registered Agent

A Kansas LLC must continuously maintain an agent for service of process in the state.  A commercial registered agent service may act as a Kansas registered agent.

Conclusion

Because of the advantages of forming an LLC in Kansas, over 7,000 new LLCs are formed in the state each year. Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Kansas. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in Kansas with your Delaware LLC (Form Delaware LLC).

Kansas LLC Act Statutory References
§ 17-7663“Definitions”
§ 17-7666“Registered Office; Resident Agent”
§ 17-7673“Articles of Organization”
§ 17-7686“Admission of Members”
§ 17-7687“Classes; Voting”
§ 17-7689“Events of Bankruptcy”
§ 17-7695“Classes and Voting”
§ 17-76,101“Allocation of Profits and Losses”
§ 17-76,106“Resignation of Member”
§ 17-76,112“Assignment of Limited Liability Company Interest”
§ 17-76,113“Rights of Judgment Creditor”
§ 17-76,114“Right of Assignee To Become Member”
§ 17-76,116“Dissolution”
§ 17-76,121“Registration Required; Application”
§ 17-76,126“Same; Maintenance of Action or Suit by Foreign Limited Liability Company Not Registered; Effect of Failure To Register”
§ 17-76,134“Construction and Application of Act and Operating Agreement”
§ 17-76,139“Limited Liability Company; Annual Report; Annual Report Fee; Copies of Applications of Extension of Time To File Income Tax Returns with Secretary of State, Confidentiality”