legal, llc, ownershipThis might seem a little pedantic, but I’m curious about what’s going on here, legally. I just formed my first LLC online by filling in a few names and addresses and forking over $100. Maybe I missed some fine print, but does this financial exchange / agreement implicitly mean I am the initial owner (assuming I didn’t do the “paper”work under contract for someone else)?
Currently, this company has no operating agreement or EIN. As far as explicit contracts are concerned, as far as I’m aware, there are no members. So suppose some random guy decides that he’s the owner of this company then proceeds to draft and sign this agreement. What happens if he submits this to the state? Maybe something prevents this (he might need access to my Web account to amend things), but more importantly: Why does there seem to be no explicit owner when you start a LLC like this? And if it’s not a weird gray area, who is legally the default owner and why?
My best guess is that it’s intentionally ill-defined to make ownership more flexible and something the state doesn’t have to provide infrastructure for.
First of all, you would be wise to exercise some caution before forming legal entities you do not fully understand. You could create some serious liability for yourself at both the state and federal level. Even though there is a lot of sales material out there that might give you the impression you have the ability to organize and manage such an organization (when I say “organization,” it could just mean one person in many states), the reality is these are complex legal matters that require expertise to do correctly.
What’s also important to understand is business organizations pre-date the Internet and require a more traditional paradigm to understand.
Business organizations, including partnerships, corporations, LLCs, and a few others, are governed by a combination of law (which includes default provisions), owners’ agreements (negotiated by the owners or their representatives), and potentially other stakeholders with varying degrees of influence. The rules will be different for each company in each state and in each circumstance – so very little can be broadly said about all business organizations.
I am going to very impersonally answer your questions, but you must consult with an attorney (preferably one who has an accounting credential as well like a CPA) on these matters if you want correct answers for your situation. This is not legal advice.
Maybe I missed some fine print, but does this financial exchange / agreement implicitly mean I am the initial owner (assuming I didn’t do the “paper”work under contract for someone else)?
You are simply letting a state agency know you have formed an organization as allowed by the state’s laws. You can call this an “agreement” if you want. You agreed to pay your taxes/fees and to maintain compliance with your legal and accounting filing requirements, and in exchange your organization gets some protections and privileges under the law.
Keep in mind, you are responsible for knowing what your requirements are. No one (other than you) has the responsibility to let you know or to remind you what you need to do. Further, no one (other than your paid attorney/accountant) has the responsibility to tell you what is best, right, or proper.
Currently, this company has no operating agreement or EIN.
An EIN is only strictly required in some circumstances and only to file documents with the IRS (and maybe with your state’s taxing authority). An EIN is probably not required to form or maintain a business organization unless you meet certain criteria. Without an operating agreement, the LLC may or may not actually exist, depending on the state’s laws. It takes more than just filing articles of incorporation/organization (or similar) for a business organization to exist / continue to exist.
So suppose some random guy decides that he’s the owner of this company then proceeds to draft and sign this agreement.
Anyone can commit fraud at any time, whether or not an LLC is involved. Fraud is not specific to business organizations. Issues like this are dealt with in the courts after the fact. Staying in compliance with the legal requirements of maintaining your organization will provide you with a paper trail to defend your control of the organization if this is ever a problem.
Fraud like this is harshly punished by both criminal and civil law which is a major deterrent.
What happens if he submits this to the state? Maybe something prevents this (he might need access to my Web account to amend things)
Anyone can submit anything they want to any government in the United States. The right to petition is protected by the first amendment. The government is not an online service where your goal is to limit communication from your account based on some credentials (like your username and password). You can’t prevent anyone from submitting anything. The law will give the government power over what is and isn’t filed and how they respond to various filings. If you have a problem with unauthorized submissions, the proper venue is ultimately the courts.
Many states have open online systems where anyone can monitor all filings made with the state by an organization. You could possibly monitor the filings for your organization that way. (That being said, the state probably isn’t required to guarantee the accuracy and timeliness of such a system.)
Why does there seem to be no explicit owner when you start a LLC like this?
There is always someone (either an individual or another organization, or maybe even the state itself) as prescribed by the state’s laws, for any organization that actually exists. There is no such thing as an control-less organization (or an anonymously controlled organization, for that matter). More than likely, your LLC will be either owned by the organizer(s) (you) until proper member(s) are in place, or it will simply not have been fully created and therefore no LLC yet exists to own. This all depends on your state’s laws.
And if it’s not a weird gray area, who is legally the default owner and why?
There is nothing gray about this. There are millions of improper, ill-conceived, or otherwise non-compliant organizations formed every year in every state. The laws have very clear procedures for nullifying their existence (and often leveling fines in the process) regardless of whether or not someone paid the hundred bucks (or whatever) required to file formation articles with the state.
My best guess is that it’s intentionally ill-defined to make ownership more flexible and something the state doesn’t have to provide infrastructure for.
No, it’s just that the law assumes organizers have competent counsel so the government doesn’t have to spend taxpayer resources holding someone’s hand through the legalities of running a business organization.
Just some personal non-legal advice:
Who owns an LLC by default?
In legal terms, there is a “natural person” involved. That person is probably you or someone you know because:
I just formed my first LLC online by filling in a few names and addresses
Look closer at those names/addresses. Your LLC is basically a “non-natural person” - it’s a legal entity that cannot do any physical activities, and as such must have appointed a natural person to act on its behalf. Or, perhaps, more than one. Those people are on that list of names/addresses that you used when you filled in “a few names and addresses.”
Your inability to identify with certainty these one or more persons at this time, does not mean they do not exist or they can be easily replaced by anyone. It also means that another random/unknown person cannot execute documents in order to assume ownership of the LLC without being scrutinized or breaking a law, similar to “identity theft”. In other words, you may not know or be able to discern who has the authority to run this brand new LLC, but that does not mean that anyone can do whatever they choose.
As mentioned elsewhere, you should do research. Based on the question you are asking, I assume that you are already doing that out of concern for protecting your $100 cost. Additionally, you should be concerned with someone extending that liability to an extent where the corporation enters into debts that it claims are “personally backed by you” but you may be unaware of. (This is extremely unlikely, but it is still in your best interest to prevent it.)
“Who Owns an LLC By default?” There is no specific answer to that question, because there are entirely too many variables to factor in..
TECHNICALLY - Nobody “Owns” an LLC, there is a “Managing Member” - outlined in the articles of Organization…if it’s a single person LLC than obviously one person fills all roles…But depending on what state the LLC was formed in, the Managing member could be another LLC or inc. as well
PS: (true in all 50 US States + DC) if NO ARTICLES OF ORGANIZATION or Operating Agreement Exist, than no State LLC Registration process could have ever taken place…check your SOS’s website, they usually have a registered business lookup tool of some sort to help in these situations
TY
All content is licensed under CC BY-SA 3.0.