CategoryLLC

What Are Michigan Articles of Organization?

You may have read my previous post on LLC Operating Agreements and thought, “that’s not the first step, is it?”  Well, no, it’s not.  The first step in legally forming a business should be to meet with a Michigan business lawyer to get the critical advice and help you need to make sure you get the full, legal benefits of forming the business.

The first documentation step in forming a Michigan Limited Liability Company (LLC) is to draft and file Articles of Organization (the “Articles”).  Filing the Articles means that the business entity officially “exists.”  Although the Michigan Limited Liability Company Act (the “Act”) doesn’t require a particular form for the Articles, it does set out what information is required in the Articles. For example:

  • The name of the LLC,
  • The purpose(s) for which it is formed,
  • The street and mailing address for the LLC’s registered agent,
  • Whether the LLC will be managed by a manager or by the members, and
  • How long the LLC will last.

Generally, I favor using the form from the State of Michigan Department of Licensing and Regulatory Affairs (click here for the form). Don’t let the simplicity of the form fool you.  There are many important decisions that need to be discussed and decided with a Michigan business lawyer before knowing whether or not the state form is sufficient for your particular business.  And in certain cases it is better to use custom-drafted Articles rather than the form, to make sure your goals and objectives for the business are accurately represented.

Have questions about getting your business “off the ground?”  Want to make sure that your existing business was set up to give you the maximum protection and help reach your full potential?  Call us at 616-827-7596 and schedule your business needs analysis meeting to have added peace of mind.

Michael Lichterman is a relationship-based business attorney who leverages his business, marketing and legal knowledge to help business owners and entrepreneurs create a Foundation for Business Success™.  This goes beyond merely drafting a set of documents – it’s about  proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business.  He best serves small business owners (less than 50 employees) and entrepreneurs.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients  and their businesses – many of which have become great friends.

Michigan LLC Charging Order Asset Protection

So you’ve read my post about charging orders against Michigan LLCs and are thinking, “so what?!”   Well, the key is not so much what it is, but whether it is the only remedy a creditor may have or just one of many.

Much review and comment has been made about a 2010 Florida case, Olmstead v FTC, 44 So 3d 76, and the effect it may have on the level of asset protection provided by a Single-Member Limited Liability Company.  Why?  Because the court determined that, under Florida law, a creditor is not limited to a charging order as a means of collecting on the judgment.  That could mean the creditor could “step into the shoes” of the LLC Member, effectively taking all ownership in the company and directing it as the creditor sees fit.  I think all Michigan LLC owners can agree, that’s a bad thing.

Well, Michigan business attorneys and the Michigan legislature were listening to the scuttlebutt.  What came out of it was a change to Michigan law via a 2010 amendment to the Michigan Limited Liability Company Act (the MLLCA).  Section 507 (MCL 450.4507) of the MLLCA now makes it clear that the charging order is the “exclusive remedy” by which a judgment creditor of a Member may satisfy a judgment out of a Member’s membership interest.

And THAT is a good thing for asset protection.  It limits the creditor to distributions from the LLC.  No distributions = nothing to the creditor.  And the creditor is not able to have any say in the LLC’s actions . . . it leaves the Member in control of the company.  And that is a great thing for Michigan business owners!

Important Note: there is still some belief that a court could find that a charging order is not the only remedy in certain circumstances involving a single-member LLC.   Make sure to meet with a Michigan business lawyer before making any decisions.

Michael Lichterman is a relationship-based business attorney who leverages his business, marketing and legal knowledge to help business owners and entrepreneurs create a Foundation for Business Success™.  This goes beyond merely drafting a set of documents – it’s about  proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business.  He best serves small business owners (less than 50 employees) and entrepreneurs.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients  and their businesses – many of which have become great friends and trusted confidants.

What Is A Michigan Charging Order?

As a Michigan Business Attorney and Estate Planning Attorney I have worked with numerous business owners and individuals to help protect their business and/or their family assets.  In many cases that protection involves forming a Michigan Limited Liability Company (an LLC).  One of the main reasons for forming LLCs is right there in their name . . . limited liability.

Many Michigan business owners desire to limit their personal liability for their business activities.  The idea being, if the business is liable for some damage to a person, business or property, the business owner does not want his or her personal assets (home, financial accounts, cars, etc.) at risk for the business liability.  Simply forming the LLC is not enough, but it is a good first step.  I will discuss additional liability limiting steps in a future post.

It’s a fact of life for many businesses and business owners . . . the dreaded lawsuit.  And what happens if you lose?  Well, you become a “judgment debtor,” meaning you are a debtor to the individual(s) or business(es) that won the lawsuit against your business.  And they have all sorts of “remedies” – actions they can take to collect on the court judgment amount.  One of those is commonly referred to as a charging order.

A charging order is a court-authorized right granted to a judgment creditor to attach distributions made from a business entity (such as a LLC) to a debtor who is a Member in the entity.  In a way, it is similar to garnishment of wages or income.  It does not give the creditor ownership or management rights in the LLC.

Remember that a charging order was just one of the “remedies” available to a judgment creditor?  Well, many business owners and individuals who want to protect their assets would like it to be the only remedy.  Can you guess why?  Let me know what you think by commenting on this post.  I will let you in on the reason in my next post and uncover the Michigan law relating to the “charging order only” remedy.

Michael Lichterman is a relationship-based business attorney who leverages his business, marketing and legal knowledge to help business owners and entrepreneurs create a Foundation for Business Success™.  This goes beyond merely drafting a set of documents – it’s about  proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business.  He best serves small business owners (less than 50 employees) and entrepreneurs.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients  and their businesses – many of which have become great friends and trusted confidants.

What Is A Michigan Operating Agreement?

As a Grand Rapids, MI business lawyer, I have helped many Michigan entrepreneur business owners start their businesses.  Many of them want to form their business as a Limited Liability Company (LLC).  This leads us to a conversation about the LLC Operating Agreement.  To my initial surprise, many of the business owners I meet with ask, “what is an operating agreement?”

A LLC operating agreement is like Bylaws for a corporation.  Don’t worry – if you don’t know what Bylaws are, I will cover them in a future post.  According to wikipedia, an operating agreement is “an agreement among [LLC] Members governing the LLC’s business, and Member’s financial and managerial rights and duties.”

LLCs are a “creature” of state law, so it is important to note that you can find Michigan’s Limited Liability Company Act here.  Michigan law defines an operating agreement as “a written agreement by the member of a limited liability company that has 1 member, or between all of the members of a limited liability company that has more than 1 member, pertaining to the affairs of the limited liability company and the conduct of its business.” (MCL 450.4102(2)(r)).  Pretty close to the wikipedia definition.

Although not required, an operating agreement is a very important tool for two key reasons: (1) it forces the Members (owners) to determine how they want the LLC internally governed, and (2) it puts those directions down on paper so it’s not left up to “he said, she said” if there is a disagreement among Members down the road.  If you don’t have one, you will be at the mercy of the LLC statute’s default provisions.  It’s your business, don’t YOU want to decide how it’s governed or do you want the State of Michigan to tell you?!

And in case you are thinking “I’m the only owner, an operating agreement isn’t even valid with only one owner,” think again.  Michigan law specifically authorizes operating agreements for single-member LLCs and having one is a great idea for the #1 reason mentioned above and as additional support for the “limited liability” provided by the LLC in the first place.

Thinking about starting a business and want to form an LLC?  Already have an LLC but not an operating agreement?  Or do you have an operating agreement and not understand why or what it means to your situation?  Call us today at 616-827-7596 to schedule a comprehensive Small Business Strategy Session.  And if you mention this blog post we’ll waive the session fee (a $1,250 value!)

Michael Lichterman is a relationship-based business attorney who leverages his business, marketing and legal knowledge to help business owners and entrepreneurs create a Foundation for Business Success™.  This goes beyond merely drafting a set of documents – it’s about  proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business.  He best serves small business owners (less than 50 employees) and entrepreneurs.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients  and their businesses – many of which have become great friends and trusted confidants.

What is a Michigan Limited Liability Company (LLC)?

As a Grand Rapids business lawyer, great folks routinely call our office and say “I need to form an LLC.”  When I ask them why, the answers range from “because I want to start a business,” to “my buddy started one and said it was the best way,” to “my CPA suggested I form one.”  This lets me know that there is some confusion among business owners and entrepreneurs about what, exactly, a LLC is.

As you can tell by the title of this post, LLC is the abbreviation for Limited Liability Company.  The law on Michigan LLC’s can be found here.  In short, a LLC is a form of legal business structure under which you can operate your business.  Some other well-known forms of business structure are corporations and partnerships.

Michigan LLCs are typically more flexible in their formation and operation than corporations and typically provide a greater level of liability protection than a partnership.  The “owners” of a LLC are called “Members.”  There can be as little as one Member (referred to as a single-member LLC or SMLLC) and up to as many Members as you want (collectively referred to as multi-member LLCs or MMLLCs).

LLCs, like corporations, offer a certain level of liability protection for the owner’s personal assets if certain legal and practical steps are taken.  This, combined with the flexibility mentioned above, is why many business owners choose to formally operate as a LLC.

This brief explanation would not be complete without mentioning everyone’s favorite topic…taxes.  By default, LLCs are taxed as a “pass through entity.”  That means that the profits and losses “pass through” the entity down to the owner(s) personal tax return…the LLC does not pay the taxes, the owner(s) does.  Although that is the default, there are elections that can be made to be treated differently for tax purposes.

It is important to keep in mind that a LLC is not always the best way to form your Michigan business.  The considerations mentioned above are just the “tip of the iceberg.”  Starting a Michigan business without talking with a relationship-based Michigan business attorney could cost you (and your business) dearly down the road.

Looking to start a business or want to make sure your business has the correct foundation for continued success?  Call us at 616-827-7596 for a comprehensive Small Business Strategy Session.  Mention this blog post and we’ll waive the strategy session fee (a $1,250 value!).

Michael Lichterman is a relationship-based business attorney who leverages his business and legal knowledge to help business owners and entrepreneurs create a foundation for success™.  This goes beyond merely drafting a set of documents – it’s about  proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business.  He best serves small business owners (less than 50 employees) and entrepreneurs.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients  and their businesses – many of which have become great friends and trusted confidants.