LLC Terms Glossary
A meeting of LLC members and managers held once a year, as required by some operating agreements or state laws, to discuss important business matters, make decisions, and ensure compliance.
A periodic filing required by most states that provides updated information about the LLC’s business activities, management, and contact information. It is often used to maintain the LLC’s good standing.
The fee that LLCs are required to pay to the state on an annual or biennial basis in order to maintain their legal existence and good standing.
Articles of Incorporation are foundational documents filed with the state to officially form a corporation. They establish the legal existence of your corporation and include essential information about your business. Once filed with the relevant state agency (usually the Secretary of State), these documents officially register the corporation and provide it with legal standing to conduct business.
The formal document filed with the state to create an LLC. It includes basic information about the company, such as its name, address, purpose, and sometimes its management structure.
A formal change to the LLC’s articles of organization or operating agreement. This may be necessary when making significant changes to the company’s structure or operations.
A government-issued permit that authorizes an LLC to conduct specific business activities within a given jurisdiction, often obtained from the city or county where the business operates.
Also known as a “members’ agreement” or “buyout agreement,” it is a legally binding document that outlines the terms and conditions for buying out a member’s interest in the LLC, often in the event of death, disability, or a desire to sell.
The process by which potential buyers or investors thoroughly examine an LLC’s financial, operational, and legal records before acquiring an ownership interest or investing in the company.
An individual account maintained for each member of an LLC that tracks their contributions, distributions, and share of profits and losses.
A mechanism outlined in the operating agreement that allows the LLC to request additional capital contributions from its members to cover business expenses or investments.
A formal notification sent to LLC members when additional capital contributions are required to fund the company’s operations or business expansion.
The initial investment made by members into the LLC, which can include cash, property, or services. Capital contributions often determine a member’s ownership stake in the company.
The total value of a company’s equity, which includes both contributed capital (capital contributions by members) and retained earnings.
AKA Articles of Organization is the official document filed with the state when creating a Series LLC, specifying the existence and structure of the series within the LLC.
A formal written agreement among members or managers to approve a specific action or decision, often used when a formal meeting is not held.
A document that formalizes the contributions made by members to the LLC, including capital, property, or services, and outlines the terms and conditions associated with those contributions.
The process of changing the legal structure of a business entity, such as converting from a sole proprietorship or partnership into an LLC, or vice versa.
A legal document that outlines the process and terms for converting an existing business entity, such as a corporation or partnership, into an LLC.
State laws and regulations that govern the process of converting one type of business entity into another, such as converting a corporation into an LLC.
A situation where an LLC fails to meet its contractual obligations, which can include missed payments, breaches of the operating agreement, or other violations of legal or financial agreements.
Payments made by an LLC to its members, which can include profits, returns of capital, or other financial disbursements. Distributions are typically outlined in the operating agreement.
An arrangement where the LLC acts as a distributor or reseller of products or services produced by another company, often through a distribution agreement.
A structured method outlined in the LLC operating agreement for allocating profits and distributing them among members, often specifying the order and priority of distributions.
The process of ending or closing down an LLC’s operations. This may be voluntary if members decide to close the business or involuntary due to legal issues or failure to comply with state requirements.
A provision in the operating agreement that allows a majority of members to force minority members to join in the sale of the company if they decide to sell their ownership stake.
A document outlining the procedure for winding down the LLC’s affairs and distributing assets if the members decide to dissolve the company voluntarily.
A formal IRS election made by the LLC to choose how it will be taxed for federal income tax purposes, either as a disregarded entity, partnership, S corporation, or C corporation.
A formal IRS election made by the LLC to choose how it will be taxed for federal income tax purposes, either as a disregarded entity, partnership, S corporation, or C corporation.
A Tradename, DBA & Fictitious Business Name are all the same thing, each state refers to it differently. This simply means another name under which an LLC may operate that is different from its legal name. LLCs may need to register a DBA with the appropriate authorities.
The legal obligation of LLC members and managers to act in the best interests of the company and its members. This includes duties of loyalty and care.
Comprehensive reports, including the balance sheet, income statement, and cash flow statement, that provide a snapshot of an LLC’s financial health and performance.
An accounting period that does not necessarily follow the calendar year, often chosen by the LLC to align with its business cycle or optimize tax planning.
An LLC that is registered and operating in a state other than the one where it was originally formed. Foreign LLCs typically need to register with the state where they conduct business.
An annual state tax that some states impose on LLCs for the privilege of doing business within the state. The tax amount varies by state and is often based on the LLC’s income or capital.
The intangible value of an LLC’s reputation, brand, customer base, and other factors that can enhance its market position and overall value.
The individual or entity responsible for filing the initial paperwork, such as the Articles of Organization, to create the LLC, often replaced by the initial members or managers.
An arrangement where the LLC agrees to compensate and protect members, managers, or employees from personal liability for certain actions taken on behalf of the company.
The specific state or country in which an LLC is formed and governed by the respective laws and regulations of that jurisdiction.
A legal business structure that combines the limited liability protection of a corporation with the flexibility and pass-through taxation of a partnership or sole proprietorship.
A document issued by the state as evidence of the LLC’s existence, typically following the filing of the Articles of Organization or equivalent formation document.
Insurance coverage that protects the LLC and its members from legal claims and financial losses resulting from lawsuits or other liability issues.
One of the key benefits of an LLC, limited liability means that the personal assets of the members are generally protected from the company’s debts and liabilities. This shields personal assets from business-related lawsuits.
Some LLCs have a manager-managed structure where one or more members are designated as managers to handle day-to-day operations. This is in contrast to member-managed LLCs where all members participate in management.
An owner of an LLC. Members can be individuals, other companies, or entities, and they typically have a stake in the company’s profits and losses.
A document that outlines the rights and responsibilities of LLC members, including their financial interests, voting power, and rules for transferring ownership.
An accounting record for each member that tracks their capital contributions, withdrawals, and their share of profits and losses.
A formal document that records decisions made by the members of an LLC, such as changes to the operating agreement, approval of major transactions, or other significant business matters.
An LLC with two or more members. Multi-member LLCs are often taxed as partnerships, with profits and losses allocated among the members according to their ownership percentages.
A document that outlines the internal rules, management structure, and ownership percentages of an LLC. It helps establish how the company will be run and how decisions will be made.
The difference between an LLC’s current assets (e.g., cash, accounts receivable) and current liabilities (e.g., accounts payable, short-term debt), representing the funds available for day-to-day operations.
The tax structure of an LLC where business profits and losses “pass through” to the individual members’ personal tax returns. LLCs do not pay federal income tax themselves.
An attribute of many LLCs that allows them to continue existing indefinitely, even if members leave or new members join the company.
A legal doctrine where a court may disregard the limited liability protection of an LLC and hold its members personally liable for the company’s debts and actions if they have not followed proper legal and financial procedures.
The primary location where an LLC conducts its day-to-day operations, often used for determining the state of formation and taxation.
A method of distributing profits or losses among members based on their ownership percentages or capital contributions, ensuring an equitable share of earnings.
The process by which an LLC distributes its profits among its members. This is typically outlined in the operating agreement and can be based on ownership percentages or other criteria.
The method used to distribute profits and losses among LLC members, which can be based on ownership percentages or other agreed-upon criteria.
An attribute of many LLCs that allows them to continue existing indefinitely, even if members leave or new members join the company.
A designated individual or entity responsible for receiving legal documents, such as lawsuits or official government notices, on behalf of the LLC. The registered agent’s address is often the official address of the LLC.
The physical location within the state where an LLC’s registered agent can be found and where legal documents and official correspondence are delivered.
A set-aside of a portion of profits or capital contributions to cover unexpected expenses or future investments. A reserve fund can provide financial stability to the LLC.
Similar to a registered agent, a resident agent is an individual or entity responsible for receiving legal documents on behalf of the LLC. The term “resident agent” is often used in some states instead of “registered agent.”
The formal process by which a member voluntarily leaves an LLC. The terms for resignation are typically outlined in the operating agreement.
The portion of profits remaining in the LLC after all expenses, taxes, and distributions have been accounted for. Residual profits are typically reinvested in the business or allocated to members.
A provision in the operating agreement that grants existing members the option to purchase a departing member’s interest before it is offered to external buyers.
An optional tax election that LLCs can choose, which allows them to be taxed as an S-corporation. This may result in potential tax savings for some LLCs.
Adhering to federal and state regulations when issuing or selling membership interests (equity) in the LLC, ensuring compliance with securities laws.
A type of LLC structure that allows for the creation of separate “series” or divisions within the LLC, each with its own assets, liabilities, and members. Each series is typically shielded from the liabilities of the others.
A legal document that establishes the rights, responsibilities, and operations of individual series within a Series LLC, often resembling an operating agreement but tailored to each series.
A person or entity appointed to oversee the operations of a specific series within a Series LLC, with responsibilities similar to those of a traditional LLC manager.
A financial arrangement where an LLC uses its assets as collateral to secure a loan or other financing, providing the lender with a legal claim to those assets if the loan is not repaid.
An LLC with only one owner, often referred to as the “sole member.” It still offers limited liability protection, but the taxation is typically handled as if it were a sole proprietorship.
A document filed with the state that designates individuals or entities authorized to legally bind the LLC in transactions or agreements with third parties.
A provision in the operating agreement that gives minority members the right to join in the sale of the company initiated by a majority member, ensuring they receive the same terms and conditions.
A legally registered symbol, word, or phrase that distinguishes a company’s products or services from those of others, protecting the company’s brand identity.
The difference between an LLC’s current assets (e.g., cash, accounts receivable) and current liabilities (e.g., accounts payable, short-term debt), representing the funds available for day-to-day operations.
Adhering to state and federal workplace safety regulations and implementing safety protocols to protect employees and reduce liability risks.
