The Basics you need to know before creating an llc in Georgia
May 1, 2023
Limited Liability Companies in Georgia
The Limited Liability Company (“LLC”) has become a common entity choice for business owners in Georgia. When done correctly, an LLC gives owners favorable pass-through tax status while also insulating owners from personal liability for the debts of the business. Because it is relatively easy to form an LLC in Georgia, some small-business owners and entrepreneurs file the necessary paperwork to form an LLC without the help of legal counsel. However, careful owners will get the advice of an attorney to assist with forming the LLC and draft additional documents, such as an operating agreement and subscription agreements, to maximize the protection and flexibility an LLC offers. Georgia law does not require that owners create these additional documents to form an LLC, but by doing so owners get to choose the way they want their LLC to operate, and protect their LLC from expensive disputes down the road by making those rules certain.
Legal Requirements to Form an LLC – The Bare Minimum
Creating an LLC in Georgia is accomplished by filing a one-page document called the “Articles of Organization” with the Georgia Secretary of State. The person or persons filing the Articles of Organization with the Secretary of State to create the LLC are referred to as the “organizers.” It is important to note that the organizers do not have to be owners of the LLC (owners of an LLC are referred to as “members”). Any person can organize an LLC regardless of whether they have an ownership interest in the LLC, and simply being listed as an organizer with the Secretary of State does not establish that a person is also a member of the LLC. Most often the Articles of Organization do not disclose the names or ownership interests of any of the members.
The only other information that must be in the Articles of Organization is the name of the LLC. The name must contain the words “limited liability company” or “limited company.” Abbreviations such as “L.L.C.”, “LLC”, “L.C.” or “LC” are allowed. The name cannot already be used by another corporation or LLC registered with the Secretary of State. You can search the names of businesses registered with the Georgia Secretary of State at https://ecorp.sos.ga.gov/BusinessSearch.
In addition to the Articles of Organization, organizers must also provide their name and address, the address of the LLC’s registered office, the name of the registered agent for the LLC, and the address of the LLC’s principal place of business. The registered agent is the person designated to accept service on behalf of the LLC. Just like organizers, the registered agent does not need to have any ownership interest in the LLC. Any person residing in Georgia, or even any other corporation or LLC authorized to do business in Georgia, can serve as the registered agent for an LLC. The main purpose of the registered agent is to accept service of process on behalf of the LLC. A legal notice served to the registered agent listed with the Secretary of State will count as legal service upon the LLC itself. Therefore, it is important to have a reliable registered agent with a stable registered office, and to keep the registered agent information with the Secretary of State up to date.
The Operating Agreement
There is no legal requirement that an LLC create an operating agreement. Plenty of entrepreneurs do not draft an operating agreement and simply file the Articles of Organization necessary to create their LLC. However, not drafting a written operating agreement signed by all of the members at the time the LLC is created opens up the LLC and its members to easily avoidable risk.
The operating agreement is the method by which members can lay out the ground rules that will govern the LLC. An operating agreement can be as brief or detailed as the situation requires. The operating agreement is not filed with the Secretary of State and should be kept with the LLC’s internal records. At a minimum, the operating agreement should specify the members’ ownership interests in the LLC; members’ duties, authorities, and responsibilities; and the method and manner for allocating and distributing profits and losses from the LLC to each of the members.
The operating agreement should be in writing and signed by all of the members, otherwise it may not be enforceable against a person who was a member at the time the written operating agreement was created but did not sign the operating agreement. If neither the articles of organization nor the written operating agreement specifies the manner in which profits and losses of the LLC are to be allocated among the members, then the profits and losses must be allocated equally among the members. Thus, members might think they are creating an LLC in which certain members will have a more active role, or make larger capital contributions, and therefore have a higher percentage of ownership and more distributions from the business than other members. If this arrangement is not in writing, either in the articles of organization or an operating agreement signed by all the members, then the LLC may be forced to allocate profits and losses equally among all the members, regardless of whether some members contributed more capital or sweat equity to the business.
This example highlights the importance of drafting a written operating agreement signed by all the members at the outset of the LLC. Members do not want to be in a situation where they are trying to create a written operating agreement specifying respective ownership interests and methods of allocating and distributing profits among the members after a dispute has already broken out among members. Taking the time to document the ground rules for the business at the outset is an easy way to protect the business from expensive fighting and uncertainty in the future. Having the rules in writing often prevents disagreement from happening in the first place. When the rights and responsibilities of members are laid out in writing, it reduces the possibility for confusion as the business grows. When all that disagreeing members have is their individual memory of oral agreements from years prior, the dispute is open to potentially expensive and time-consuming litigation.
Professional Assistance from Legal Counsel
Our firm helps businesses and owners throughout Georgia navigate the many areas where their business and the law intersect. Lawyers at our firm assist clients with everything from forming their business, to purchasing or selling businesses and their assets, to defending or pursuing litigation involving businesses, employees, and owner disputes. The vast experience shared by attorneys at our firm enables us to provide comprehensive counsel to business owners and, where possible, avoid expensive disputes before they arise. An LLC can give business owners a large degree of flexibility and personal protection, but if owners do not take the time to make a written operating agreement, they will leave a lot of the benefits an LLC can offer on the table and invite unnecessary problems in future. Obtaining the advice of legal counsel for the formation of an LLC will help maximize and protect your investment in your business.