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Whether you consider yourself an Okie or a Sooner, you can form an LLC in Oklahoma to protect your personal assets from any liability claims asserted against your business.
4 SIMPLE STEPS TO FORMING A OKLAHOMA LLC
- Naming Your Company
New Oklahoma LLC names must be distinguishable from the names of all other business names on file with the Oklahoma Secretary of State, whether domestic or foreign. They must also contain the words “limited liability company” or “limited company,” which can use the abbreviations “ltd.” or co.,” or the designators “LLC,” “L.L.C., “L.C.,” or “LC.”
- Filing Your Company
To start your LLC, you must file articles of organization with the Secretary of State. These articles of organization must include the name of the LLC, its term of existence (which can be perpetual), the address of its principal office, the name and address of its registered agent, and whether the LLC will be designated as a Series LLC. The filing fee for Articles of Organization is $100.
- Governing Your Company
All Oklahoma LLCs are governed by operating agreements, whether they are explicitly written, spoken, or implied. Under Oklahoma law, this is any agreement between the members, and it binds all members. We recommend that all members of an LLC explicitly execute a written operating agreement.
- Running Your Company
EIN: Employees and members of a multi-member Oklahoma LLC will need the LLC to obtain an Employer Identification Number, from either the I.R.S. directly or an incorporation service, for income taxes.
Annual Certificate and Fee: To maintain their status, Oklahoma LLCs need to file an annual certificate with its principal business address and pay a $25 fee to the Secretary of State.
WHY FORM AN LLC IN OKLAHOMA?
The Benefits and Advantages of Creating an Oklahoma LLC
Oklahoma Has a Growing Economy
Each year, Oklahoma forms over 15,000 new LLCs. Oklahoma has over 99,000 active LLCs. The U.S. Chamber of Commerce ranks Oklahoma first for having the lowest cost of living, fourth for short-term job growth, and fifth for taxes and regulation.
- Advantages of Forming an Oklahoma LLC
The Oklahoma 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. Section 18-2025 allows an LLC’s members to specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than their portion of capital contributions. 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 sections 18-2017 and 18-2020, the “operating agreement may provide for classes or groups of members or managers or both having such relative rights, powers and duties as the operating agreement may provide,” including the creation of new classes in the future. 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.
The Act does not require filing of members’ names. A “person” may organize an LLC by filing its articles of organization with the Oklahoma Secretary of State. The definition of “person” is not just a natural person, but includes almost any kind of business or legal entity. Likewise, section 18-2006 states organizers do not need to be members of an LLC. 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. Section 18-2005 states articles of organization may provide that an LLC shall have a perpetual duration. An LLC’s existence can therefore outlive its members’ lifetimes.
Dealing with Business Partners
The Oklahoma LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Section 18-2016 has a default rule that managers owe limited fiduciary duties of good faith, care, and loyalty: “A manager shall discharge the duties as a manager in good faith, with the care an ordinary prudent person in a like position could exercise under similar circumstances, and in the manner the manager reasonably believes to be in the best interests of the limited liability company.” In addition, unless the articles of organization or an LLC agreement provide otherwise, managers must account to an LLC and hold as a trustee for it any personal profit or benefit derived in the conduct of the LLC’s business without the informed consent of the LLC’s members.
But the Act gives members and managers contractual freedom to “opt out” of most of the default rules. Section 18-2017 provides that with three exceptions, the articles of organization or an LLC agreement may “[e]liminate or limit the personal liability of a member or manager for monetary damages for breach of any duty provided for in Section 2016.” The three exceptions are that an LLC agreement may not limit or eliminate liability for (1) breach of a manager’s duty of loyalty, (2) acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law, or (3) any transaction from which a manager derives an improper personal benefit. These provisions make minority interests safer investments and therefore more valuable.
Preventing Unwanted Business Partners
The Oklahoma LLC Act allows members to protect their control of an LLC. The default rule under section 18-2033 is that a membership interest is not transferable unless the LLC agreement provides otherwise. However, a member may assign the economic rights associated with the membership interest. Assignment of the economic rights entitles the assignee to share in allocations of profits and losses and distributions to which the assignor would have otherwise been entitled. But assignment does not “entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights or powers of a member.” Instead, a majority of the non-assigning members must consent to the assignee becoming a member.
Creditors Only Get Passive Rights, Not Control Rights
Section 18-2035 provides that if a judgment creditor of a member obtains a charging order against the member’s membership 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 member. But the judgment creditor does not have a right to participate in management. Furthermore, a charging order is not “convertible into a membership interest through foreclosure,” and section 18-2035 is a judgment creditor’s “sole and exclusive remedy.”
- Oklahoma Registered Agent
An Oklahoma LLC must continuously maintain an agent for service of process in the state. A commercial registered agent service may act as an Oklahoma registered agent.
Because of the advantages of forming an LLC in Oklahoma, over 15,000 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 Oklahoma. 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 Oklahoma with your Delaware LLC (Form Delaware LLC).
- Oklahoma LLC Act Statutory References
§ 18-2001 “Definitions” § 18-2005 “Articles of Organization—Contents” § 18-2006 “Execution of Articles—Evidence of Authority—Signatures” § 18-2010 “Registered Office and Agent” § 18-2012.2 “Operating Agreement of LLC” § 18-2016 “Managers—Duties—Good Faith—Liability” § 18-2017 “Member or Manager—Limitation or Elimination of Liability—Indemnification—Creation of Series or Groups” § 18-2020 “Members—Voting Rights” § 18-2025 “Allocation of Profits and Losses—Distributions” § 18-2033 “Assignment of Membership Interest” § 18-2034 “Judgment Creditor—Rights and Interests” § 18-2035 “Assignee of Interest in Limited Liability Company—Membership Rights, Powers, Restrictions and Liabilities—Rights and Liability of Assignor—Admission to Membership Directly in Limited Liability Company” § 18-2043 “Foreign Limited Liability Company—Registration Procedure” § 18-2048 “Foreign Limited Liability Company—Necessity of Registration To Transact Business in State” § 18-2054.4 “Establishment of One or More Series of Members, Managers or Membership Interests—Enforceability of Debts, Liabilities, Obligations and Expenses—Powers and Duties—Voting Rights—Management of Series—Distributions—Termination of Series—Registration of Foreign Company” § 18-2055.1 “Failure To Pay Registered Agent Fees” § 18-2055.2 “Annual Certificate for Domestic Limited Liability Company and Foreign Limited Liability Company” § 18-2058 “Rules of Construction of Act”
Oklahoma vs. Delaware LLC's: Which State Is Better?
|LLC Filing Fee
|Required to Name Members or Managers
|Reduce Fiduciary Duties?
|Charging Order as Exclusive Remedy
|Maximum Freedom of Contract
|Separate Equity Court?