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Whether you are a lobster fisherman or an outdoor clothing company, you can take advantage of the protection offered by a Maine LLC to prevent business creditors from seizing your personal assets.
HOW TO PROTECT YOUR SMALL BUSINESS WITH A MAINE LLC
- 1. Name the LLC
Maine LLCs must use one of the following designators in their name: “limited liability company,” “limited company,” “L.C.,” “L.L.C.,” “LLC” or “LC.” The name must be distinguishable from all marks and business names that the Secretary of State has on record. The Secretary of State can refuse to file a name that is obscene, promotes abusive or unlawful activity, or falsely implies a relationship with the government.
- 2. Register the LLC
Filing the certificate of formation with the Secretary of State and paying the $175 filing fee will officially register your LLC with the State. The Certificate of Formation requires the LLC name and the name and address of the LLC’s registered agent in Maine.
- 3. Sign an Operating Agreement for the LLC
Maine law sees any agreement between members, whether oral, written, or implied, as a legally binding operating agreement that will regulate the affairs of the LLC. To make sure that the operating agreement contains what you want it to, we recommend having a written agreement that all members execute.
- 4. Maintain the LLC
EIN: Unless you have a single member LLC with no employees, you will need an Employer Identification Number from the I.R.S., or an incorporation service that will deal with the I.R.S. for you.
Annual Report: Maine LLCs must file annual reports with the Secretary of State that say the name and address of their registered agent, their principal office address, a statement of the character of the LLC’s business, and the name and address of at least one member, manager, or authorized person. Domestic LLCs must pay a $85 filing fee, and foreign LLCs must pay $150 to file their annual report.
WHY FORM AN LLC IN MAINE?
Each year, Maine forms over 4,000 new LLCs. Maine has over 20,000 active LLCs.
- Advantages of Forming a Maine LLC
The Maine LLC Act expressly states its purpose is to give “maximum effect to the principles of freedom of contract and to the enforceability of limited liability company agreements.”
The Act gives members contractual freedom to create voting and non-voting classes of membership and customize their capital contributions and shares of profits and losses. The ability to create voting and non-voting classes of membership facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests. The ability to specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than a member’s portion of capital contributions gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.
The Act provides for an LLC’s unlimited life. Section 1504 states an LLC has a perpetual duration. An LLC’s existence can therefore outlive its members’ lifetimes.
The Act does not require filing of members’ names, although a member, manager, or authorized person must be named in the annual report. An “authorized person” may organize an LLC by filing its certificate of formation with the Maine Secretary of State. The definition of “person” is not just a natural person, but includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s certificate of formation.
Boxing In the Legal Rights of Your Business Partners
The Maine LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Section 1559 provides a default rule that members and managers owe limited fiduciary duties of good faith and care. The duty of care requires members and managers to act with “the degree of diligence, care and skill that ordinarily prudent persons would exercise under similar circumstances in like positions.”
But the Act gives members and managers contractual freedom to “opt out” of most of the default rules. Section 1521 provides that, with only one exception, a written LLC agreement may restrict or eliminate a member’s or manager’s fiduciary duties. Alternatively, it may expand a member’s or manager’s fiduciary duties.
The Maine LLC Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from transferring their membership interests. But if an LLC agreement does not prohibit it, a transfer does not dissolve the LLC or entitle the transferee to participate in management or to become a member. Instead, the transferee may receive only the distributions to which the transferor would have been entitled, and the non-transferring members must consent to the transferee becoming a member.
Creditors of Members Can Only Get Silent Partner Rights
Section 1573 provides that if a judgment creditor of a member obtains a charging order against the member’s membership interest, the charging order is only a lien on the membership interest. The judgment creditor has only the right to receive distributions which would otherwise be paid to the member. A court may not foreclose on the lien. Section 1573 is the judgment creditor’s exclusive remedy.
Furthermore, section 1582 states that a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors; becomes a debtor in bankruptcy; or fails to contest a petition seeking the appointment of a trustee, receiver, or liquidator over his or her property. These events are considered “events of dissociation.” A dissociated member has only the right to receive distributions and may not participate in management.
- Maine Registered Agent
A Maine LLC must continuously maintain an agent for service of process in the state. A commercial registered agent service may act as a Maine registered agent.
Out of State LLCs Can Pay a Price if They Do Not Register
An unusual aspect of the Maine LLC Act is its penalties for failing to obtain a Statement of Foreign Qualification for a foreign LLC. This is sometimes called “qualifying” a foreign LLC to do business in the state. A foreign LLC is an LLC that is formed under the laws of a state other than Maine.
In most states, a foreign LLC may defend itself in state court if it has not qualified to do business in the jurisdiction, but it may not be a plaintiff in state court until it has qualified. But Maine also charges an LLC a civil penalty of $500 for each year or portion of a year it conducted business in Maine without being qualified. Because a one-time application for a Statement of Foreign Qualification costs only $250, foreign LLCs should qualify to do business in Maine if there is any doubt about their status of “doing business” in Maine.
Because of the advantages of forming an LLC in Maine, over 4,000 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 Maine. 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 Maine with your Delaware LLC (Form Delaware LLC).
- Maine LLC Act Statutory References
§ 1502 “Definitions” § 1504 “Nature, Purpose and Duration of Limited Liability Company” § 1507 “Rules of Construction” § 1508 “Limited Liability Company Name” § 1521 “Limited Liability Company Agreement; Scope, Function and Limitations” § 1522 “Provisions of the Chapter that May Not Be Modified by the Limited Liability Company Agreement” § 1531 “Formation of Limited Liability Company; Certificate of Formation” § 1551 “Admission of a Member” § 1554 “Sharing of and Right to Distributions” § 1559 “Duties of Members and Other Persons” § 1571 “Member’s Transferable Interest” § 1572 “Transfer of Transferable Interest” § 1573 “Charging Order” § 1582 “Events Causing Dissociation” § 1622 Statement of Foreign Qualification To Conduct Activities Required” § 1629 “Effect of Failure To Have Statement of Foreign Qualification” § 1661 “Registered Agent for Limited Liability Company” § 1665 “Annual Report for Secretary of State” § 1680 “Filing and Copying Fees; Penalties”
Maine vs. Delaware LLC's: Which State Is Better?
|States||LLC Filing Fee||Required to Name Members or Managers||Report Frequency||Annual Fee?||Reduce Fiduciary Duties?||Series?||Charging Order as Exclusive Remedy||Maximum Freedom of Contract||Separate Equity Court?|
|Maine||$175.00||Yes||annual||$85 Domestic, $150 Foreign|