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Whether you brew beer in Bozeman or run a small trout fishery, Montana business owners can benefit from forming a Montana LLC to protect your personal assets from the liabilities of your business.
FORMING AN LLC FOR YOUR MONTANA SMALL BUSINESS
- Naming Your LLC
Names of Montana LLCs must be distinguishable on the Secretary of State’s records from all other LLCs, corporations, and partnerships that are formed or qualified to do business in Montana. The name must also contain “limited liability company” or “limited company,” which can be abbreviated.
- Forming Your LLC
To be able to officially transact business as a Montana LLC, articles of organization must be filed with the Secretary of State, who must be paid a $70 filing fee. The articles of organization must include the LLC name, a statement of the LLC’s term of existence (if applicable), the address of its principal office in Montana, the name and address of its registered agent, a statement of whether the LLC will be managed by members or managers, the names and addresses of whichever class will manage (managers or members), and a statement if any members will be personally liable for the obligations of the LLC. The organizer can also add any additional provisions to the articles of organization that they want on public record.
- Regulate Your LLC Affairs
The affairs of a Montana LLC are regulated by an operating agreement. Unlike most states, Montana operating agreements will take precedence over articles of organization in a variety of matters. Montana makes the operating agreement optional and does not require that it be in writing, although we recommend that all LLCs have written operating agreements.
- Keep Your LLC Valid
EIN: Any Montana LLC that will have multiple members or will require employees should obtain an Employer Identification Number, either directly through the I.R.S. or from an incorporation service.
Annual Report: Every Montana LLC must file an annual report with the Secretary of State. This report must state the same information as the articles of organization, excluding the LLC term and if a member is personally liable for LLC obligations. This is accompanied by a $15 filing fee.
WHY FORM AN LLC IN MONTANA?
The Benefits and Advantages of Creating a Montana LLC
You are located in Montana and want to form an LLC to operate a business or own an asset. You have a decision to make. Form an LLC in Montana or go elsewhere, for example to Delaware, to import more favorable laws to govern the LLC’s internal affairs. To make an informed decision, it is important to know more about the Montana LLC and its limits to determine if it is adequate for your business.
Montana Has a Growing Economy
Each year, Montana forms over 9,000 new LLCs. Montana has over 38,000 active LLCs. The U.S. Chamber of Commerce ranks Montana second for export intensity growth, third for export growth, sixth for academic research and development intensity, seventh for per capita income growth, and eighth for business tax climate and long-term job growth.
- Advantages of Forming a Montana LLC
The Montana LLC Act gives members contractual freedom to create voting and non-voting classes of membership and to 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 does not require filing of members’ names (unless there are no managers). A “person” may organize an LLC by filing its articles of organization with the Montana 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 articles of organization.
The Act provides for an LLC’s unlimited life. A Montana LLC may have an “at-will” duration, meaning that it exists perpetually until the members decide to dissolve it. An LLC’s existence can therefore outlive its members’ lifetimes.
Dealing with Business Partners
The Montana LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Section 35-8-310 has default rules that members and managers owe limited fiduciary duties of care and loyalty. The duty of care requires members to refrain from “engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.” The duty of loyalty requires members and managers to not compete with the LLC or take a business opportunity away from the LLC, not deal with the LLC in a manner adverse to it or on behalf of parties who have an interest that is adverse to it, and act as trustees of the LLC’s property.
But the Act gives members and managers contractual freedom to vary the default rules. Section 35-8-109 provides that an LLC agreement may “identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.” In addition, it contains a “safe harbor” provision for “interested” transactions, which are transactions between an LLC and one or more of its members or managers. It provides that an LLC agreement may “specify the number or percentage of members or disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.”
Preventing Unwanted Business Partners
The Montana LLC Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from transferring their distributional interests. If an LLC agreement does not prohibit it, a transfer or assignment 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 unanimously consent to the transferee becoming a member.
Creditors Only Get Passive Rights, Not Control Rights
Section 35-8-705 provides that if a judgment creditor of a member obtains a charging order against the member’s distributional interest, the charging order is only a lien on the interest. The judgment creditor has only the right to receive distributions which would otherwise be paid to the member. The judgment creditor does not have a right to participate in management. A court may foreclose on the lien and order the member’s distributional interest to be sold, but a purchaser at the foreclosure sale obtains only the distributional interest and does not become a member. Section 35-8-705 is the judgment creditor’s exclusive remedy.
Furthermore, section 35-8-803 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.”
- Montana Registered Agent
A Montana LLC must continuously maintain an agent for service of process in the state. A commercial registered agent service may act as a Montana registered agent.
- Qualifying Foreign LLCs
An unusual aspect of the Montana LLC Act is its penalties for failing to register a foreign LLC to do business in Montana. 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 Montana.
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. In addition to this penalty, Montana charges a civil penalty of up to $1,000 per year that a foreign LLC did business in Montana without being qualified. Because an application for registration costs only $70, foreign LLCs should qualify to do business in Montana if there is any doubt about their status of “doing business” in Montana.
Because of the advantages of forming an LLC in Montana, over 9,000 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 Montana. 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 Montana with your Delaware LLC (Form Delaware LLC).
- Montana LLC Act Statutory References
§ 35-7-105 “Appointment of Registered Agent” § 35-8-102 “Definitions” § 35-8-109 “Effect of Operating Agreement—Nonwaivable Provisions” § 35-8-201 “Formation” § 35-8-202 “Articles of Organization” § 35-8-208 “Annual Report for Secretary of State” § 35-8-307 “Management and Voting” § 35-8-310 “General Standards of Member’s and Manager’s Conduct” § 35-8-411 “Continuation of Term Company After Expiration of Specified Term” § 35-8-503 “Sharing of Profits and Losses” § 35-8-601 “Sharing of Distributions” § 35-8-703 “Nature of Distributional Interest” § 35-8-705 “Rights of Judgment Creditor” § 35-8-707 “Transfer of Distributional Interest—Rights of Transferee” § 35-8-803 “Events Causing Member’s Dissociation” § 35-8-1001 “Authority To Transact Business Required” § 35-8-1002 “Consequences of Transacting Business Without Authority”
Montana 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?|