Limited liability corporations (LLCs) are commonly used when establishing a business for it’s easier paperwork and but sufficient protection.
Our firm had a case between a tenant and a landlord over a commercial lease. The parties had made promises to each other that would extend the lease, but never actually done so. The landlord evicted the tenant and they filed a suit.
The tenants made significant improvements to the building, which were never reimbursed by the landlord. The suit was based on the tenant’s dependability on the extension of the lease. The tenant lost income because of the failed promise.
The court argument was whether or not the tenant filed suit within the statute of limitations, and if the landlord is personally liable. The landlord requested his personal name be struck from proceedings arguing that his LLC is liable, not the landlord personally. The tenant argued that the landlord referred to the company by their own name several times, and should be partially liable.
The judge granted the landlord’s motion and removed their personal name from proceedings. This was a win for the landlord as only their LLC goes through litigation. The landlord’s personal assets are protected.
These scenarios in business are why LLCs or corporations are important to establish when running business. To get the best protection overall, set up the business properly.
Video Walkthrough
Want to DIY your own LLC with the Louisiana Secretary of State? Watch our video walkthrough to see how to set it up for yourself.
Part 1/2 - Reserve the LLC Name First!
How do you setup an LLC in Louisiana?
Our Louisiana attorney will walk you through creating an Limited Liability Company on the Louisiana Secretary of State's website.
Part 2/2 - Apply for EIN and Finalize your LLC!
LLC Setup
Forming an LLC has benefits that make it a commonly used business structure. The main benefit is in the name itself: “Limited Liability” means that the owner’s liability is limited to the assets of the LLC itself.
Other benefits including adding partners, or receiving more tax benefits with an S-Corporation.
Of course, there’s also common mistakes to avoid.
Necessary Documents
If you own a Louisiana LLC, you are required to have a registered office. This can be your home or business address, but not a post office. The registered office is required certain documents on hand:
Operating Agreement
One of the most common calls we receive from business owners involve partnership disputes, and the vast majority of the disputes would have been solved with a well-considered operating agreement.
The operating agreement clarifies ownership percentages, roles, responsibilities, and rights. The agreement protects the business from inside out and prevents conflicts that will have legal consequences. Once the agreement is drafted, have an attorney review it unless they draft it for you.
Articles of Incorporation
It is not uncommon to misplace the Articles of Incorporation for your LLC. The Louisiana Secretary of State makes it easy to find and download these documents at a low cost.
- Search the secretary’s Business Listing Database for your business’s name.
- Once you find your particular listing, click the Buy Certificates and Certified Copies button in the top left.
- Your Articles of Incorporation will be included as an Original Document, so either download just the original document(s), amendments, or last annual report (if applicable). Generally, we recommend downloading the more expensive option because it includes more information.
- Go through the checkout page and you should be able to download your AOI.
All amendments should be included with the operating agreement in the registered office.
Financial Statements and Tax Returns
The financial statements are income statements, balance sheets, cash flow statements, and shareholder’s equity statements. The registered office needs to have the most recent 3 years on hand of these documents. The federal and state tax returns in the last three years need to be on hand.
Member Information
There must be a list of the full names of each member and manager. The documentation must provide the last known business address. Records of which would enable a member to determine the relative voting rights of the members should be in the registered office.
Annual Report
An annual report is a simple form that includes any changes in ownership, addresses, or management. Most of the time a business does not need to make any changes, so they verify the current information and pay the annual fee.
If the report is not filed in a particular year, the Secretary of State’s listing will indicate your business is not in good standing for failure to file an annual report. After three consecutive years of failing to file, the company will become inactive.
Filing an Annual Report
Businesses have the option to file by mail or online. Regardless of the method, the fee for filing is $30.00. There will be a $5 convenience fee if filing online, the mail option does not require the $5 fee.
- Filing Online
To file online, you’ll need the charter number and annual report renewal ID. The charter number can be found by searching for the business and viewing the listing. The renewal ID comes on a postcard mailed by the Secretary of State annually. You can also call their office at (225)925-4704 and request the renewal ID. - Filing by Mail
Find the business listing on the Secretary of State’s website, and click the button for Print Annual Report for Filing. Put a line through any changes, write in any additions, and follow the directions for mailing the form.
Setting Up LLC from Another State
Let’s assume you have a business you operate in another state. That business is organized as an LLC under the laws of the state you’re from and has been running quite well. Now you’re looking to expand in Louisiana and wonder how to legally expand your business here.
You may find yourself asking these questions:
- Should I form a Louisiana LLC?
- Should I register as a foreign entity and operate the new business under my original state’s LLC? (foreign doesn’t mean another country, in business law it can be another state)
- If I do register a Louisiana LLC, should it be a subsidiary of your original LLC? Or should it be its own separate entity?
In this situation, you’ll want to consider liability protection, taxes, and internal business organization. These areas will help you come to the decision of whether or not to create another LLC.
Liability Protection
Understand the risks of anything bad happening within your business. If you have a high liability business, you should consider a separate LLC for each location. Therefore, other locations will continue to operate as normal if anything happens at the Louisiana location.
The disadvantage here is that you’ll have more administrative overhead. You’ll need separate bank accounts, separate books, and separate employees to run the new LLC. However, the lack of liability protection could be a bigger issue.
Taxes
You’ll want to know if there is a tax advantage one way or another. You’ll more than likely pay taxes in both states either way, but consider another LLC if you can save a significant amount on taxes.
Licensing and Permitting
Certain businesses can be regulated by the state and require a permit to do business in their state. Figure what licenses you need and determine whether a foreign LLC can apply for those licenses. State law may require there to be a domestic LLC registered.
Employees
Will the same employees be working in both businesses? Regardless, you’ll have to set up another payroll system, unemployment account, and more overhead. It’s much easier when you have a completely separate group of employees.
Every business is different, so you’ll have to at your specifics before making a decision. Keep in mind state business laws vary as well.
Of course, if you want to hire people, you’ll probably want to read our article about How to Successfully Hire Employees for Your Business
Operations
Operating your LLC correctly is important as a lack of compliance could lead to bigger legal issues. There are some things to consider such as structure options, investment, and the different areas of your business to operate.
Low-Profit LLCs
Louisiana is one of only eight states that allow a business to operate under the low-profit LLC (L3C) structure. This type of LLC was created in 2008 in the state of Vermont. An L3C is a subset of an LLC that has a mixture of for-profit and tax-exempt investors. The main goal of an L3C is the social benefit overall, then the secondary purpose is to profit. However, L3Cs are not restricted to how much profit they can earn.
Requirements of an L3C
In the state of Louisiana, a business must meet the following criteria to retain the special status:
- There must be a charitable or educational purpose, within the meaning of section 170(c)(2)(B) of the IRS code.
- No significant purpose of producing or appreciating assets. This can be done, but it cannot be the main purpose.
- The goal of the L3C cannot be political or legislative.
If the L3C falls short of any of these requirements, then the business will revert to an LLC under Louisiana law.
How to Operate an L3C
According to the IRs, an L3C business cannot be considered a non-profit organization or tax-exempt unless all investors are tax-exempt entities. The L3C bridges the gap between for-profit entities and non-profit entities, specifically private foundations.
Private foundations can make “program-related investments”, or PRIs. These investments made by private foundations in a for-profit venture that focuses more on the foundation’s charitable, educational, or religious activity.
Be careful with these kinds of investments as your business structure could jeopardize the foundation’s exempt purpose. Being that the structure is fairly new, there are still questions to be answered on how the courts will handle different scenarios. For now, if choosing to operate an L3C, make sure you continue to meet the requirements.
Investments
An LLC can perform the same functions as a corporation. It can issue membership interests that are similar to shares of stock, it can assign management to a group (like a board of directors), and it can appoint managers similar to officers.
Every manager or member of the LLC must be listed with the Secretary of State. Anytime someone buys or sells interest in the company, the records will have to be updated and will be public. Some investors may be hesitant about public records.
An LLC is a great option still if investors are okay with public records and you only plan on having a few investors. But if you have investors who are persistent about their privacy and you have more than a few investors, a corporation would be best.
Manager Managed Vs Member Managed LLCs
When forming an LLC, one of the things to consider is whether your entity will be manager-managed or member-managed.
In member-managed LLC, all business owners are considered members. They also double as managers and have broad discretion in operating the business. The operating agreement is what restricts the rights of the LLC members. Make sure an operating agreement is in place, especially if there is more than one member.
We highly recommend an Operating Agreement for any business with more than one partner, and explain the benefits in our guide to business partnerships.
Manager-managed LLCs have ownership separated from management, meaning equity and decision making are separated. The situation may arise when a person is providing financing in exchange for ownership., but will not have much to do with day-to-day operations. In these cases, you may wish to give the investor rights to membership but restrict their management authority. That way the decision-makers of the LLC will have more flexibility.
Adding a Member to your LLC
The Louisiana Secretary of State makes it easy for you to list an additional member or manager. Before you add that new member, you need to make sure you have the authority to do so. Read your operating agreement yo make sure you are following proper procedure.
Follow these steps online to add a member:
- Go to the Louisiana Secretary of State website
- On the top navigation menu, click on business services, then search for Louisiana business filings
- Search the name of your LLU under search by entity name
- Find your charter number and copy to your clipboard
- On the left navigation menu, click on file business documents
- Click on file amendments
- Paste your charter number from step 4 into the search box
- Confirm that the LLC is what you would like to edit and click on ‘file amendment’
- Select notice of change and then click continue.
- Click on file notice of change
- On the first page, you’ll be asked to confirm the mailing address and registered office.
- The second page will prompt you to update your registered agent.
- The third page is where you can add members, click on add additional member/manager
- Sign, pay, and finalize
We’re happy to help you with this process if you’re not comfortable doing it yourself! Learn more about our services to help in adding and removing partners, or drafting Operating Agreements.
Removing a Member from your LLC
You’ll have to update records with the Secretary of State when removing a member as you would adding members. Remember to have paperwork explaining why the member is leaving the LLC. This is a safety precaution because members being removed from an LLC may try to challenge the removal and demand that paperwork. Always consult with a business attorney when considering the removal of a member.
However, if you would like to complete the process online or already spoke to an attorney, here what to do:
- Go to the Secretary of State of Louisana website and search for your business name.
- Look for your charter number and make sure you copy and paste to your clipboard.
- There is a left navigation panel, click file business documents and then file amendments.
- Enter the charter number and click on ‘file amendment’.
- Select Notice of Change.
- Confirm you are filing a notice for the proper LLC and click file notice of change.
- On the first page, you’ll be asked to confirm the mailing address and registered office.
- The second page will prompt you to update your registered agent.
- On page three is where you can add or remove members.
- Sign, pay, and finalize
This online process is the easy part of removing a member. The harder part may be drafting and preparing paperwork on a member’s removal. It’s required to draft the paperwork, but from a protection perspective, it’s necessary.
Changing Members or Managers
If you want to change members or managers of the LLC, then you will have to file form 938A with the Louisiana Secretary of State. Sometimes this is all you have to do, but review your operating agreement to see if there is anything else to do.
Your agreement should specify the procedure for adding, removing, or changing members. The procedure could include sending a notice to all members and managers, or it may require that votes are made to decide.
Shutting Down an LLC
Closing down an LLC in the state of Louisana is a process the Secretary of State calls ‘dissolving’. Generally, we recommend against dissolving an LLC. When that happens, any liabilities of the LLC pass to the members as their personal liabilities. How bad that is depends on how “bad” those liabilities are. But it’s never a good thing.
If you formed your LLC in hopes of starting a business, and never took any money (or spent any), we recommend you do nothing. There is no harm in letting the LLC remain active. The Louisiana Secretary of State will declare it inactive after 3 years of not filing an annual report. There is no penalty.
If you do need to actually dissolve an LLC, you should probably talk to a lawyer. It’s a rare circumstance that this option is better than “letting it ride” for 3 years, so it’s worth ensuring that dissolution is actually a good idea. If it is, you must file a Notice of Dissolution with the Louisiana Secretary of State. This is easy to do.
We had a client who filed the Notice of Dissolution because his business wasn’t active. That passed more than $100,000 of liability onto his personal assets. We were able to reinstate the LLC without issue; however, filing the dissolution and reinstating the entity cost the client significantly more than not filing the dissolution in the first place.
How to file annual report for llc in louisiana?
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