By Joseph W. Boucher

Drafting LLC and Partnership Agreements

Excerpted from Drafting LLC and Partnership Agreements

The sample LLC Checklist provided in the following section [Form 1-1] can be used to collect critical information and to identify certain matters that must be covered in an LLC Operating Agreement.

For a more detailed and complete LLC Checklist, see the LLC Formation Checklist prepared by the American Bar Association. [See LLC Subcommittee of the ABA Commission on LLCs, P’ships and Unincorporated Entities, Model LLC Organizational Checklist (Final Subcommittee draft, publication forthcoming).]

§1:91 LLC Agreements Are Industry Specific

The LLC Checklist [Form 1-1] is not business or transaction specific. However, a final LLC Operating Agreement needs to be drafted to reflect the characteristics of the business of the LLC.

Specific samples of LLCs for different types of businesses are provided in the Chapters 2 through 13, relating to specific businesses.

Form 1-1 LLC Checklist

LLC Checklist

A. Client

1. Client is (describe, e.g., Member; LLC; Manager; Member and LLC; More Than One Member):

_______________________________________________________________________________

_______________________________________________________________________________

2. Name and Address of Client(s):

a. ___________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

3. Engagement Letter and Waivers: ________________________________________________

4. Client/Matter Number: _________________________________________________________

5. Accountant: _________________________________________________________________

B. Information for Articles of Organization

1. State of Organization: _________________________________________________________

2. Name of LLC: _______________________________________________________________

3. LLC will be: Member Managed; Manager Managed; Other

4. Name of Registered Agent: _____________________________________________________

5. Address of Registered Agent: ___________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

6. Principal Address of LLC: ______________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

7. Name and Address of Organizer (describe): _______________________________________

_______________________________________________________________________________

_______________________________________________________________________________

8. Effective Date of Organization: __________________________________________________

9. Professional LLC: Yes   No

10. Formed by Conversion or Merger: Yes   No

11. Special Provisions: __________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

12. Operating Agreement to be Signed by LLC: Yes   No

13. Operating Agreement to be Signed by Managers: Yes   No   N/A

C. Information for Articles of Organization

1. Member #1:

Name: _______________________________________________________________________

United States Person: Yes   No

If entity: form of entity, jurisdiction of organization and tax status: _________________________

_______________________________________________________________________________

State(s) of Residence or Residence In Which Taxable: ________________________________

Taxpayer Identification Number: ___________________________________________________

Address: _____________________________________________________________________

Telephone Number: _____________________________________________________________

Fax Number: __________________________________________________________________

E-mail Address: ________________________________________________________________

Member #2:

Name: _______________________________________________________________________

United States Person: Yes   No

If entity: form of entity, jurisdiction of organization and tax status: _________________________

_______________________________________________________________________________

State(s) of Residence or Residence In Which Taxable: ________________________________

Taxpayer Identification Number: ___________________________________________________

Address: _____________________________________________________________________

Telephone Number: _____________________________________________________________

Fax Number: __________________________________________________________________

E-mail Address: ________________________________________________________________

Member #3:

Name: _______________________________________________________________________

United States Person: Yes   No

If entity: form of entity, jurisdiction of organization and tax status: _________________________

_______________________________________________________________________________

State(s) of Residence or Residence In Which Taxable: ________________________________

Taxpayer Identification Number: ___________________________________________________

Address: _____________________________________________________________________

Telephone Number: _____________________________________________________________

Fax Number: __________________________________________________________________

E-mail Address: ________________________________________________________________

Member #4:

Name: _______________________________________________________________________

United States Person: Yes   No

If entity: form of entity, jurisdiction of organization and tax status: _________________________

_______________________________________________________________________________

State(s) of Residence or Residence In Which Taxable: ________________________________

Taxpayer Identification Number: ___________________________________________________

Address: _____________________________________________________________________

Telephone Number: _____________________________________________________________

Fax Number: __________________________________________________________________

E-mail Address: ________________________________________________________________

If Member is a trust, estate, or other entity, provide key information.

2. Tax Classification:

a. Is this a single member LLC: Yes   No

b. If LLC is to be taxed other than as a partnership under Subchapter K, describe how and why:

________________________________________________________________________________

________________________________________________________________________________

D. General Provisions

1. General Provisions:

a. Effective date of operating agreement: _________, 20__

b. Statement of LLC’s purpose: ___________________________________________________

________________________________________________________________________________

c. Fiscal year Calendar year Other: __________________________________________

2. Financial Statements; Accountant; Accounting Method; Audits:

a. Describe how often financial statements will be given to Members: _____________________

________________________________________________________________________________

b. Name of accountant and contact information:

(Name) ______________________________________________________________________

(Firm) ________________________________________________________________________

(Address) _____________________________________________________________________

______________________________________________________________________________

(Phone) ______________________________________________________________________

(E-mail) ______________________________________________________________________

c. Accounting method: Cash   Accrual

d. Certification of membership interests: Yes   No

3. Capital Contributions:

a. Initial contributions:

   Member         Form of Contribution (if debt, how secured?)                Value

1.  ________     __________________________________________     ________

2.  ________     __________________________________________     ________

3.  ________     __________________________________________     ________

4.  ________     __________________________________________     ________

b. Representations and warranties regarding debt and title related to contributions (Title Insurance required by LLC?) (Consider preparation of separate contribution agreement):

________________________________________________________________________________

________________________________________________________________________________

4. Additional Contributions:

a. Are additional contributions required? Yes   No

b. If agreed in advance:

    Form of Contribution            Value             Date or Conditions of Making Contributions

1. _____________________    __________    ________________________________________

2. _____________________    __________    ________________________________________

3. _____________________    __________    ________________________________________

4. _____________________    __________    ________________________________________

c. Are additional capital calls permitted? Yes   No

(i) What triggers events then? (describe): ___________________________________________

_____________________________________________________________________________

_____________________________________________________________________________

d. Describe consequences of failure to fund: _________________________________________

______________________________________________________________________________

Suggestions:

(i)         Reduction in share of profits

(ii)        Reduction in share of profits and reallocation of capital

(iii)       Preferential distributions to other members

(iv)       Loan from company at ____%

(v)        Loan from non-defaulting member (and interest rate)

(vi)       Personal liability on the part of member

(vii)      Opportunities for other members to make up and defaulting member is diluted

(viii)      Suspension of management authority or voting rights

(ix)       Right to purchase defaulting member’s interest in the LLC

(x)        Forfeiture of defaulting member’s interest in the LLC

(xi)       Automatic diversion of distributions to make up deficit (lien like)

e. Adjustment of capital accounts: _________________________________________________

5. Issuance of Equity Interests to Service Provider:

a. Equity interests offered as compensation for services? Yes   No

b. Describe specifics: ___________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

6. Are Members Guaranteeing LLC Obligations? (describe): _________________________

______________________________________________________________________________

______________________________________________________________________________

7. Describe Distributions:

a. General: ____________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

b. Proceeds from capital transactions: ______________________________________________

______________________________________________________________________________

______________________________________________________________________________

c. Liquidating distributions: _______________________________________________________

______________________________________________________________________________

______________________________________________________________________________

d. In kind: _____________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

e. Tax distributions: _____________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

8. Describe Maintenance of Capital Accounts. Capital accounts will be maintained in accordance with Treas. Reg. §1.704-1(b)(2)(iv): Yes   No

______________________________________________________________________________

______________________________________________________________________________

9. Describe Allocations of Profits and Losses: _____________________________________

______________________________________________________________________________

______________________________________________________________________________

10. Allocation of Debt (if any): ___________________________________________________

11. Describe Loans From Members: _____________________________________________

______________________________________________________________________________

______________________________________________________________________________

12. Transfers of Membership Interests:

a. Voluntary transfers:

(i)         Absolutely prohibited

(ii)        Permitted, but assignee is not admitted without consent of ____% of the other members

(iii)       Permitted only with consent of ____% of the other members

(iv)       Permitted to (describe): ________________________________________________

b. Involuntary transfers:

(i)         Assignee is not admitted without consent of all other members

(ii)        Assignee not admitted without consent of ____% of the other members

c. Rights of first refusal/offer (describe): ____________________________________________

_____________________________________________________________________________

13. Describe Member Termination Arrangements:

a. Type of arrangement – describe (Put/Call/ Buy-Sell): ________________________________

_____________________________________________________________________________

b. Describe circumstance for exercise of disengagement: ______________________________

_____________________________________________________________________________

c. Price:

(i)         Set by agreement by the members or managers on a regular basis

(ii)        “Book” value

            (1)         As kept for tax purposes (prepared by the Company’s regular employed accountant)

            (2)         “Booked up” to fair market value of Company assets

(iii)       “Fair market” determined by appraisal periodically or at time of call, etc.

            (1)         As kept for tax purposes

            (2)         “Booked up” to fair market value of Company assets

(iv)       Formula: _______________________________________________________________

14. Dissociation:

a. Describe voluntary withdrawal of a member: _______________________________________

_____________________________________________________________________________

b. Describe death, disability, dissolution or bankruptcy of a member:______________________________________________________________________

_____________________________________________________________________________

_____________________________________________________________________________

c. Describe dissolution/termination of a member’s existence as a member: ________________

_____________________________________________________________________________

_____________________________________________________________________________

15. Describe Consent for Approval of Amendments to Operating Agreement: __________

_____________________________________________________________________________

_____________________________________________________________________________

16. Will the LLC Go Public? Yes   No

17. Dissenters’ Rights in the Event of Merger: Yes   No

18. Derivative Actions: Yes   No

19. Tax Matter Partner: ________________________________________________________

E. General Member Information

1. Describe Classes of Members: ________________________________________________

______________________________________________________________________________

2. Describe Manner of Consenting: ______________________________________________

______________________________________________________________________________

F. Information for Operating Agreement if Member-Managed

1. Describe Methods of Measuring Level of Authorization or Consent: _______________

_____________________________________________________________________________

_____________________________________________________________________________

G. Information for Operating Agreement if Manager-Managed

1. Describe Initial Managers: ____________________________________________________

______________________________________________________________________________

2. Describe Qualification of Managers: ___________________________________________

______________________________________________________________________________

3. Describe Selection of Managers: ______________________________________________

_____________________________________________________________________________

4. Describe Election or Appointment of Managers: _________________________________

______________________________________________________________________________

5. Describe Removal of Managers: ______________________________________________

_____________________________________________________________________________

6. Describe Manner of Consenting: ______________________________________________

______________________________________________________________________________

7. Describe Methods of Measuring Level of Consent: ______________________________

8. Managers to Sign Operating Agreement: Yes   No

9. Describe Duties of Managers: ________________________________________________

_____________________________________________________________________________

H. Other Matters

1. Foreign Qualifications: Yes   No

Describe: _____________________________________________________________________

2. Capital Contribution Agreement Needed: Yes   No

Describe: _____________________________________________________________________

3. Business Already in Operation as a General/Limited Partnership or Sole Proprietorship:
Yes   No

a. Describe transfer of documents of assets in exchange of capital contribution: ____________

_____________________________________________________________________________

_____________________________________________________________________________

b. Tax considerations for initial contribution (book-up, taxable event, etc.): __________________

______________________________________________________________________________

______________________________________________________________________________

4. Trade Name Registrations With Secretary of State: ______________________________

______________________________________________________________________________

______________________________________________________________________________

5. Advice Given That Name Registration of Company and of Trade Name Does Not Give Trademark Protection: Yes   No

Intellectual Property Work Referred to: __________________________________________

6. Describe Domain Name: _____________________________________________________

_____________________________________________________________________________

7. Name of Accountants; Other Legal Advisors:

a. Tax Advisor: _________________________________________________________________

b. Estate Planning Attorney: ______________________________________________________

c. Financial Advisor: ____________________________________________________________

d. Other Advisor: _______________________________________________________________

I. Dissolution, Winding Up and Termination

1. Describe Voluntary Dissolution: _______________________________________________

______________________________________________________________________________

2. Describe Involuntary Dissolution: _____________________________________________

______________________________________________________________________________

J. Dispute Resolution

1. Mediation Required: Yes   No

2. Arbitration: Yes   No

Describe: _____________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

K. Representations and Warranties

1. For Any Member That is an Entity, Due Formation and Valid Existence

2. Member Has Read the Agreement

3. Member Not Named on OFAC SDN List

4. Representation of Accredited Investor Status and Other Disclosures Required Pursuant to Applicable Federal and State Securities Laws

5. ___________________________________________________________________________

6. ___________________________________________________________________________

7. ___________________________________________________________________________

Task Party Responsible Deadline
Articles/Certificate of
Organization
File Immediately?
Yes/No

Delayed Effective Date?
Yes/No  Operating Agreement  Capital Contribution
Agreement  Manager Employment
Agreement(s)  Member Employment
Agreement(s)  Equity Compensation
Documents  Subscription Agreements  Bills of Sale for Capital
Contribution  Assignments for Capital
Contribution  Tax Identification Number
(SS-4)  State Revenue Initial
Filing Registration  Company Minute Book  Foreign State
Qualifications


Joseph W. Boucher practices business and tax law in Madison, Wisconsin, at Neider & Boucher. He focuses on business entity planning and early stage business formation. He has served as a chair of the Wisconsin state committee on LLC legislation, and lectures on business law to graduate and undergraduate students at the University of Wisconsin-Madison Business School.

Since 1994 he has been a co-author of the State Bar’s Wisconsin Limited Liability Handbook, and since 1991 he has been a co-author of Organizing a Wisconsin Business Corporation. Milwaukee magazine and Super Lawyers has named him one of the best business lawyers in Wisconsin. Mr. Boucher is a CPA, and received his MBA and JD from University of Wisconsin-Madison.