Chapter 3: Formation of the LLC

I.   Overview

§3.1   Limited liability companies (LLCs) provide many opportunities and alternatives for conducting business. The LLC combines the limited liability of a corporation with the flexibility and pass-through tax advantages of a partnership. Although limited liability is important, the organizational flexibility the LLC affords business planners and professionals is perhaps the LLC’s biggest advantage over many other business forms. However, with this flexibility comes responsibility. Business planners and professionals (including lawyers) must thoughtfully consider how the LLC will be organized and operated. They must give careful consideration not only to short-term business plans and relationships between members but also to long-term goals and relationships.

Every LLC will likely be different, since business goals and personal relationships will vary from entity to entity. Consequently, you, as the lawyer, will have to analyze each LLC venture individually and, in consultation with the LLC organizers and their other business planners and professionals, decide how the LLC should be organized and operated. You must then reduce those provisions to writing in the articles of organization and the operating agreement.

The Michigan Limited Liability Company Act (LLCA) defines a limited liability company as an unincorporated membership organization that is formed under the act. MCL 450.4102(2)(k). An LLC may be formed for any lawful purpose for which a domestic corporation or a domestic partnership may be formed except as otherwise provided by law. MCL 450.4201.

Because the LLC is a creature of statute, compliance with the act’s organizational requirements is necessary to properly form an LLC. Essentially, there is only one simple requirement that must be met to form an LLC. Prescribed articles of organization must be executed by one or more persons, who may or may not become members of the LLC, and then filed with the Michigan Department of Licensing and Regulatory Affairs, Corporations, Securities, and Commercial Licensing Bureau, Corporations Division. MCL 450.4202. Before the 2002 amendments, one or more persons who would become members were required to sign the articles of organization. The 2002 amendments changed this to provide that one or more persons who may or may not become members may sign the articles and form the LLC. MCL 450.4103(1), .4202(1). See §3.16 for a discussion. When this requirement is met, the LLC is formed. MCL 450.4202. For a generic organization checklist for the formation of an LLC, see form 3.1.