![]() ![]() (a) The identity of the members of the LLC If the members of the LLC have entered into an operating agreement, then the loan officer will need to review the operating agreement for the following information: When interacting with an LLC, as the borrower or guarantor, the loan officer, in addition to the articles of organization, as amended, and good standing, should request a copy of the operating agreement, as amended (also sometimes referred to as a limited liability company agreement). However, a certificate of organization for a West Virginia LLC will also establish whether the LLC is member-managed or manager-managed and the identity of the persons or entities having authority to bind the LLC.Īfter making sure that the LLC is properly formed, in good standing and with a perpetual existence or adequate term of years, then an analysis of the LLC’s scope of authority to borrow money and the identity of one or more persons who have authority to enter into binding agreements on behalf of the LLC is appropriate. For example, a certificate of formation for a Delaware LLC will only reveal the name of the registered agent and whether the LLC is created for a perpetual term or will terminate upon a date certain or term of years. ![]() The articles of organization will have more or less information depending on the state in which the LLC is organized. If the life of the LLC is for a stated number of years then the loan officer will want to confirm that the term of the loan is significantly less than the LLC’s term of existence. The articles of organization should specify whether an LLC was created as a perpetual entity or for a stated number of years. As support for this determination, the loan officer should request the borrower to provide a current certified copy of the articles of organization (or certificate of formation in Delaware), as amended, and a certificate of good standing (or certificate of existence) from the secretary of state. To do this the loan officer should visit the website of the secretary of state 1 (or other comparable state agency) of the state in which the LLC borrower is organized to determine its exact name and whether it is in good standing. In conjunction with the loan officer’s review of the all important financial information and its credit analysis of a proposed borrower, the loan officer must confirm that the borrower is properly organized and that it will continue to exist beyond the maturity date of the loan. However, LLCs are not corporations and should be evaluated as a distinct type of business organization. Some financial institutions treat an LLC borrower the same as a corporate borrower for purposes of the required documentation. The number of prospective borrowers that are limited liability companies (“LLC”) has grown over the years, but understanding how to evaluate whether the LLC is properly authorized and empowered to enter into and perform under a loan from a financial institution is not as well understood. With the greater uniformity among state limited liability company statutes and the increased comfort of business owners and lawyers in understanding the value of the limited liability company business model, more and more limited liability companies have been created to conduct a wide variety of business enterprises. ![]() General and limited partnerships do not offer all their partners a corporate-styled liability shield Subchapter C corporations do not offer their shareholders the pass-through taxation of a partnership yet all state limited liability company acts contain provisions for a liability shield and the pass-through taxation of a partnership. The allure of the limited liability company business model is its unique ability to bring together in a single business organization the best features of all other business forms - properly structured, its owners obtain a corporate-styled liability shield, flexibility in establishing rules governing internal affairs and the pass-through taxation of a partnership. The Uniform Limited Liability Company Act was amended in 1996 to adapt to certain Internal Revenue Service guidelines. In August 1994, the Uniform Limited Liability Company Act was adopted by the National Conference of Commissioners in an effort to create more uniformity among state limited liability company legislation. Although the concept of a limited liability company has been around since 1977 when Wyoming enacted a limited liability company act, the popularity of the limited liability company has primarily grown during the last 15 years.
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