Monday, April 21, 2008

Limited Liability Companies: A Very Good FAQ from New Jersey

Yes, New Jersey. The New Jersey Lawyers Blog published Limited Liability Company – Questions and Answers. I see little disagreement with Indiana law and some common-sense answers to the questions.

I thoroughly agree with this (see my post "More about do it yourself LLC Operating Agreements"):

Question 5: I know that I can form an LLC online by myself. Why do I need a professional advisor such as an attorney?

Answer: True, you can form the company online, but the mere existence of the LLC offers little protection. A professional can draft the Operating Agreement to include the provisions you want and need and can monitor activities that may cancel statutory protection. You need good documents and procedures to benefit from the statutory protection. Further, you may get significantly more protection from an LLC formed in a different state or country. An advisor familiar with the options can help you make the right decision.

I will admit that the post raises a point for favoring LLC's over corporations that I had never considered:

Question 6: What is the difference between an LLC and a corporation?

Answer: The sole remedy of a creditor of a debtor/LLC member is the charging order against distributions. The creditor of a debtor/corporation shareholder may attach and gain ownership of the shares, thus giving the creditor significant management rights. For asset-protection purposes, the LLC is a better structure.

Yet, I do not see this as a major concern in Indiana. Corporate stock falls within the category of intangible personal property. Indiana's exemption law keeps stock with a fair market value of less than $200.00 in the hands of the owner/debtor. A closely held corporation's stock has no fair market value because of the lack of a market. I think this is an interesting idea but ultimately a wash.

If you are thinking of starting an Indiana LLC, remember that I am taking on new clients.