Sample Essay on Formation of the Limited Liability Company

Formation of the Limited Liability Company


 Relevancy of the Limited Liability Company in Achieving Their Goals

Limited Liability Company, which is abbreviated as LLC, is one of the forms of the private limited company. Limited Liability Company has a structure that is both similar to the corporation as well as the partnership. However, the difference comes in where the LLC offers limited liabilities to its members in very many instances of jurisdiction, which is lacking in both the cases of the partnership and the corporation. Consequently, the fact that Limited Liability Company has a provision for the limited liability for its members makes it to ideal for the Sam, Mark, and Willy to venture into it (Pokorná & Večerková, 2012).

Moreover, the fact that the three owners do not want to be bothered with very many formalities other than the primary ones, such as tax, government reporting requirements, as well as the tax makes LLC more relevant for them. In addition, the two owners of the business, such as the Willy and Sam do not want to participate in the active daily operations of the business, a provision that is granted by the Limited Liability Company. Furthermore, Limited Liability Company will allow all of the owners to share both profits and losses equally (Wells & Yoshimoto, 2013).

Articles of Organization

Article of association has different names based on the states; some states call it a certificate of the organization while others call it a certificate of association. However, it is a document specifically for the legal foundation for any Limited Liability Company. Therefore, it forms the main document that I have to draft before initiating the formation of the LLC. Furthermore, it is the requirement of all the states that it has to be filled first before commencing the formation of the Limited Liability Company (Beesley, 2012, April 30).

However, before initiating the drafting of the article of association the business must have a legal name, as well as the registered with the state under its jurisdiction. This document contains basic information about the business such as the name of the members, the name of the company, t as well as he business address. In addition, the article of the association also covers the contacts of the agent that assisted in the business registration. Article of association together with the operating agreement are filed with the states (Beesley, 2012, April 30).

It is important to note that operating document is one of the important documents because it underlines the responsibilities and rights of each member of the LLC. Additionally, operating agreement also stipulates the percentages in regards to the interest for each member together with how the profits and losses are shared (Beesley, 2012, April 30).

Limited Liability Company Operating Agreement

LLC operating agreement provides the rules and regulations that assist in the structuring of the business organization to work smoothly. As a result, it helps the shareholders to accomplish their set goals. Consequently, it is the second document that I have to draft. Apart from providing rules and regulations concerning the normal operations of the business, LLC operating agreement is also vital for the business decision-making (Beesley, 2012, April 30).

The decisions that make this document instrumental are the functional and financial decisions. Limited Liability Company operating agreement covers the responsibilities, duties as well as the powers of each of the members. As a result, it defines how profits and losses are shared and the amount of interest that is accorded to each member. In addition, this document dictates how, where, and when members meet, together with plans for the succession. Moreover, it also contains the procedures that are followed when a member would wish to transfer ownership interest especially when a member wishes to vacate the Limited Liability Company (Beesley, 2012, April 30).

Management of the Limited Liability Company

My advice to the three partners is that operating and managing of the LLC is not as easy as it seems. However, the secret towards a successful management of the Limited Liability Company is drafting a good operating agreement. Therefore, the three need to come up with a workable and realistic operating agreement in case they want to succeed in managing a Limited Liability Company. As a result, their goals together with their desired style of management must be reflected in the operating agreement document. Briefly, for good management of the LLC, Sam, Willy, and Mark must have well-outlined goals and an explicitly stated taxation goals (Pokorná & Večerková, 2012).

Liability of LLC members

In a Limited Liability Company, owners of the business have a protection from personal liability for the events that the business incurs losses. Consequently, what they are likely to lose in the event that the company has failed to settle its debts is only the invested money. Therefore, I would advise the three partners not to have any fears of losing their personal items in the event that the business has failed to settle its debts (Pokorná & Večerková, 2012).

Duty of loyalty

The duty of loyalty dictates members to prioritize the business success above the individual ambitions. Therefore, based on the duty of loyalty I would advise the three partners to show honesty and loyalty in all the business dealings. Doing this would prevent any conflicts that are related to the objectives of the LLC and their personal goals (Pokorná & Večerková, 2012).

Agency authority

Agency authority is the entities that deal with the legal aspects of the business and filing of the lawsuits in the event that a business fail to conform to the stipulated law and regulations. Therefore, my advice to the three partners is to corporate with the agency authorities to avoid being I conflict with the law (Wells & Yoshimoto, 2013).


Unless stated in the operating agreement, most of the laws of different states require that when a member wishes to leave the LLC, the company have to be dissolved. However, I would advise the three partners that during dissolution, each member have to fulfill any business obligations that he or she might not have fulfilled. In addition, they have to pay all the business debt and share any available profits or assets. Moreover, I would also advise them to decide whether to form another LLC with the members who are remaining (Pokorná & Večerková, 2012).


Beesley, C. (2012, April 30). Forming an LLC – Key Documents You’ll Need to File and Create.

Retrieved April 22, 2015, from

Pokorná, J., & Večerková, E. (2012). The Limited Liability Company as a Universal Legal Form

of Business. Procedural Economics and Finance, 1(3), 533-538.

Wells, W., & Yoshimoto, G. (2013). The Limited Liability Company: An Analysis. American

Journal of Business, 2(4), 37-44.