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LLC Formation Worksheet

PLEASE NOTE THAT DRUMM LAW, LLC REPRESENTS THE COMPANY TO-BE-FORMED, AND NOT ANY INDIVIDUAL MEMBER OR MANAGER. EACH INDIVIDUAL HOLDING ANY INTEREST, INCLUDING A THIRD PARTY BENEFICIARY INTEREST, IS HEREBY ADVISED TO SEEK THEIR OWN LEGAL COUNSEL’S ADVICE WITH REGARD TO THE DOCUMENTS PREPARED BY THIS OFFICE. PLEASE REVIEW THE ADDITIONAL INFORMATION AT THE END OF THIS WORKSHEET REGARDING SEEKING OUTSIDE TAX ADVICE.
Please answer the following questions in order to assist us in drafting the necessary documents for your company.
1. What is the name of the LLC? (Do you prefer LLC or L.L.C.?)*
2. What is the full name and address of each Member?*
Name Address
3. What is the full name and address of each Manager?*
Name Address
4. Who will serve as statutory agent? Address?*
First Name Last Name
Address*
Street Address Address Line 2 City State ZIP Code
5. What is the address of the place of business of the LLC?*
Street Address Address Line 2 City State ZIP Code
6. What will be the business activity of the LLC?*
7. What is the interest of each Member in the cash flow, capital, profits and losses of the LLC?*
8. Are the Members related?*
- Yes
- No
If so, how?*
If not, who will represent the other members?*
9. Will the LLC be involved with real property?*
- Yes
- No
If so, what is the legal description?*
10. Will the LLC have a limited duration?*
- Yes
- No
If so, when will the LLC terminate?*
11. Will there be financing? Third party debt?*
- Yes
- No
If so, Then please describe*
12. Are there passive investors involved?*
- Yes
- No
If so, Then please describe*
13. Capital Contributions.
(a) How much will each Member be obligated to contribute and when must these contributions be made?*
(b) If in the future the LLC needs additional capital, will each Member be obligated to contribute additional capital or will it be optional?*
(c) If mandatory, what happens if a Member does not make the capital contribution?*
(d) If voluntary, will the non-contributing Members’ LLC interest be diluted?*
14. Additional Members.
(a) May the LLC bring in additional Members?*
- Yes
- No
(b) If so, who decides and what are the terms of admission for these new Members?*
15. Distributions.
(a) When will distributions be made?
(b) What will be distributed?
(c) Will there be minimal distributions required so that each Member will have sufficient cash to pay their allocable tax liability as indicated on their individual Form K-1s?*
16. Management.
(a) Who will manage the LLC? (the Members or the Managers?)
- Members
- Managers
(b) How will management decisions be made (unanimous, majority, some other voting percentage)?*
(c) How will the election of Managers be made (unanimous, majority, some other voting percentage)? How will you handle a situation where you cannot reach an agreement (i.e. put it to Members for a vote, take no action, etc.)?*
(d) What will be the term that the Managers serve? (i.e. one-year but may be reelected)*
(e) Do you want to be able to terminate a manager without cause before the end of a term?*
- Yes
- No
If so, who will make that decision (i.e. a majority of members, a majority of the other managers, specific individuals)?*
(f) Will you elect officers?*
- Yes
- No
(g) If so, what are the names of the officers and their positions*
17. Reporting.
Do you want to require the Company to distribute financial reports on a regular basis to its Members, or on an ad hoc basis, as determined by the Manager(s) and/or requested by the Member(s)? If they are to be distributed on a regular basis, please specify the frequency (i.e. quarterly, annually, etc.)
18. Tax Election.
How do you want this LLC to be treated for tax purposes? Please note that you will need to have your tax and/or financial advisor file Form 8832, Entity Classification Election, to elect how the company will be classified for federal tax purposes. Generally, an election specifying an LLC’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. An LLC may be eligible for late election relief in certain circumstances.
- Subchapter K Partnership – Note that a domestic LLC with at least two members is classified as a partnership for federal income tax purposes. This is the default tax treatment, and a Form 8832 does not need to be filed in order to retain this election. If there is only one member, and no other election has been made, the company will be treated as a disregarded entity and taxed as a sole proprietorship.
- Subchapter S
- C corporation
19. Transfer Restrictions/Buy-Sell.
It is our experience that this is given the least amount of attention when LLCs are organized. Unfortunately, if this is not thoroughly dealt with in the LLC’s organizational documents, Members may not have the protections that they otherwise thought they had. Generally people enter into a venture when they are on good terms. We believe that because the investors are on good terms at the beginning of the venture, this is the best time to work through some possibly difficult issues. Some of the issues that we like to address include the following:
(a) Do Members have the unilateral right to withdraw from the LLC? (this is not an option if you have elected to be taxed as a S-corp)*
- Yes
- No
(b) If so, does the withdrawing Member have the right to receive his share of the LLC’s property?*
- Yes
- No
(c) If so, would this be problematic to the financial future of the LLC? (if you elect to permit members to withdraw, we can allow the pay-out to be by means of promissory note payable over time)*
- Yes
- No
(d) Do Members have the right to sell their LLC interests to third parties?*
- Yes
- No
(e) Do the other Members have a first right of refusal to purchase the selling Member’s LLC interest before it can be sold to a third party?*
- Yes
- No
(f) If so, what are the terms and conditions of this right of refusal?*
(g) Do the non-selling Members have the right to buy the selling Member’s LLC interest on the same terms and conditions as the proposed sale to the third party?*
- Yes
- No
(h) Alternatively, do the non-selling Members have the right to buy the selling Member’s LLC interest at a predetermined price?*
- Yes
- No
(i) What happens to a Member’s LLC interest upon his or her death?
(j) Should this LLC interest pass to the deceased member’s descendants?*
- Yes
- No
(k) Should the other Members have the right to buy the deceased Member’s LLC interest?*
- Yes
- No
(l) What are the terms?
(m) What happens to a Member’s LLC interest should the Member become disabled?
(n) What if before the disability, the Member was actively involved in the management of the LLC?
(o) Should the other Members have the right to buy the disabled Member’s LLC interest?*
- Yes
- No
(p) What are the terms?
(q) Who determines if the Member is disabled?
(r) What happens to a Member’s LLC interest should the Member divorce his or her spouse?
(s) What happens if in the divorce settlement, the non-member spouse is awarded all or a part of the Member spouse’s LLC interest?
(t) Should the other Members have the right to buy the divorcing Member’s LLC interest?*
- Yes
- No
(u) Do the other Members want the non-Member spouse to have an interest in the LLC?*
- Yes
- No
(v) What happens if a Member files for bankruptcy or has serious creditor protection problems?
(w) Do the other Members want a third party creditor as a Member?*
- Yes
- No
Drumm Law, LLC does not provide tax advice of any kind or nature whatsoever. If your specific legal issue involves tax advice, you must separately retain a tax attorney regarding those matters. All matters involving entity formation involve tax considerations, which are particular to your situation. As a result, we strongly recommend that you consult with your tax advisor in connection with the documents that we prepare and advice that we give so that you fully understand the tax implications inherent in the type of entity that you select and you make the appropriate choices in entity formation and tax elections. Notwithstanding the foregoing, Drumm Law, LLC provides the following disclaimer in compliance with Treasury Department Circular 230:

This Worksheet includes a disclaimer stating that the writing is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on any taxpayer by the Internal Revenue Service. This disclaimer is included in order for Drumm Law LLC to comply with Treasury Department Circular 230 which governs practice before the Internal Revenue Service.

The effect of this disclaimer is that this Worksheet that includes this disclaimer may not be relied upon by any taxpayer to establish the reasonable cause and good faith defense to the accuracy-related penalties that may be imposed on the taxpayer by the Internal Revenue Service. The disclaimer is not intended to otherwise qualify or alter any of the advice or provisions in the applicable documents.
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