Document Organization is Critical for Corporations and LLCs

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The 30th U.S. President Calvin Coolidge, when he was not being “Silent Cal,” once said “the only difference between a mob and a trained army is organization.”

The former President’s quote of the criticality of organization resonates to military and business. Your company’s success depends on organization, cohesion, and synchronization that all lead to increased productivity and efficiency. And just like all your employees need to be on the same page, your company’s governing documents need organization and cohesion as well.

In a previous Vets to Ventures article, we discussed the benefits and differences of forming either an LLC or Corporation. In this follow-up article, we discuss why it’s critical for your company’s governing documents to be organized and cohesive, and what different documents are relevant and needed under the two most popular entity types – LLCs and Corporations.

Don’t Have “Frankenstein” Documents

Frankenstein didn’t appreciate being piecemealed together and neither should your company’s required documents that provide structure and clarity in the day-to-day operations of your entity.

When setting up your business, whether you have formed an LLC or corporation, it is important for your company’s documents to be organized and cohesive at your entity’s onset. Your documents identify how the entity is managed and set forth the governing people within the company; they also indicate who owns the company, and specifically in what proportion.

It is best practice to set up your documents at the same time, so that they all complement and support each other. Preparing governing documents from the beginning leaves less room for ambiguity and forced interpretation as to what the documents mean down the road. This also helps your company avoid potential issues and conflicts and minimizes the risks of litigation by properly setting forth governing principles.

Contradictory documents may result when different authors create duplicate or amended documents at various times throughout an entity’s life, especially when governing documents are an afterthought. This causes confusion for outside legal counsel and your tax or accounting professional. Companies owned by Vets can also seek federal designation, and when doing so, government agencies and banks will ask for your documents. It is advantageous for these documents to be organized and cohesive for this process to proceed smoothly and efficiently.

Lastly, organization and cohesion help in situations of growth, mergers, or any type of transactions throughout the lifeblood of your company. Having coordinated and unified company documents facilitate proper contract execution, thereby creating protection of personal assets from creditors and legal claims against the corporation. If you were to sell, merge, or terminate your entity, the process is already set forth and documented with the procedures identified.

Now that we have covered why organization and cohesion of a company’s required documents is critical, let’s discuss the different documents required for both LLCs and Corporations.

Required Documents for LLCs and Corporations 

The most notable differences between LLCs and Corporations come down to who runs the company and how they operate. LLCs come without a ton of corporate formality; they are practical for small businesses and allow for flexible management structure and adaptability. Here are several of the most common and required company documents for LLCs: 

• Certificate of Formation or Articles of Organization (applicable names vary by state) – Your certificate of formation or articles of organization is the primary filing document that establishes your LLC with the state and is filed with the relevant state authority, often the Secretary of the State. It typically includes your business name, registered agent address, initial members, and management structure, among other requirements.
  
  
  • Company owners can file and pay fees online. For example, the Texas Secretary of State has an “SOSDirect” website that allows you to file business formation documents, receive evidence of filing in real-time, order certified or plain copies of documents, file UCCs, search for business entities/obtain entity information, print documents, obtain entity status, check name availability/reserve entity names, and validate certificates, all through a secure online portal.
  • The Texas Secretary of State also publishes a “Form 205 - Certificate of Formation - Limited Liability Company” document that is helpful for business owners, laying out the minimal statutory filing requirements.
  • Specific requirements may vary by state. It is advisable to check your Secretary of State’s website for the latest filing guidelines and requirements.
• Operating Agreement or Company Agreement – This document is not required to form an LLC, but it is a valuable and necessary document for attorneys, accountants, and advisors to have on hand when working with your company. It defines critical aspects of your LLC and outlines company roles and responsibilities such as ownership percentages, profit and loss sharing, voting rights, and management responsibilities within the LLC.
• Consent Resolution – Although this document is not required to form an LLC, it is highly recommended because a consent resolution provides proper organizational authority across your company and your members.
  
  
  • A consent resolution should be kept in the LLC’s records along with other important documents, and it’s best to consult with an attorney for guidance on how consent resolutions should be properly drafted, worded, and implemented.

A Corporation is owned by the shareholders. The business is operated by officers, managed by a board of directors, and each of them has certain legal duties and liabilities. This business structure is often selected when businesses want to raise money, gain venture capital, plan to go public, or be sold. Here are the most common and required Corporation documents: 

• Certificate of Formation (or Charter) and/or Articles of Incorporation – Your certificate of formation is similar to what is required to form an LLC and needs to be filed with the respective Secretary of State. It includes business name, registered agent address, number of authorized shares, and corporate tax structure (e.g., C-Corp or S-Corp).
  
  
  • The Texas Secretary of State publishes a “Form 201 – Certificate of Formation – For-Profit Corporation” document that defines the minimal statutory filing requirements.
• Corporate Bylaws – This is an internal document that outlines the Corporation’s governance rules, including procedures for meetings, voting rights, and officer duties.
• Consent Resolution – See above description for LLCs. While not required, it is highly recommended to dictate who makes various decisions.

Conclusion

Flying by night does not cut it when it comes to governing documents. You would not run your operations without organization and cohesion. Your documents should follow suit. Company documents impact how your business operates. Professionals can help you draft them to reflect governance and ownership structure, and professionals can revise errors before they become issues.

Business formation documents and filings can be intricate, with specific legal and tax implications. Professionals can ensure your documents are accurate, complete, and comply with all state and federal regulations. Knowing your documents are accurate and compliant, and organized and cohesive, allows you to focus on running your business with confidence.

About Our Authors

Jordan Barley is a corporate services attorney in the Houston office, representing clients across a wide range of practice areas, including real estate, middle market mergers and acquisitions, and transactional needs.

Sean Buckley, a veteran U.S. Navy Officer, is a corporate services attorney in the Houston office. Sean advises clients in the purchase and sale of equity and assets, in a diverse array of industries, real estate transactions, entity selection and formation, corporate governance, and franchise opportunity matters.

Adams and Reese Vets to Ventures Series

For Our Veterans, by Our Veterans - Adams and Reese is proud to feature a monthly series of informative articles addressing hot topics of legal interest for service members
transitioning back to the private sector.

• “Remembering Our Fallen Heroes: Significance of Memorial Day”
• “Employer-Employee Considerations and Tips for Veteran Business Owners”
• “Succession Planning for Veteran-Owned Businesses with Federal Certification”
• “From Battlefield to Boardroom: Applying Military Principles to the Business World”
• “Operation Litigation: Top Tips if Your Business is Threatened with a Lawsuit”
• “Forming an LLC or Corporation: Which Business Entity is Right for You?”
• “Legal Intel for Veteran Entrepreneurs”