ࡱ> 463M bjbj== `TWW<G"l::::$P $1<<"^^tI ' 1$2 431@"31::^t2H1p:8^8trt0 H{zxp<^101&5&5::::   Prepared by: Timothy P. McAloon Marshall, Crane & McAloon, P.C. 69 Winn Street Burlington, MA 01803-4870 (781) 270-0181 (617) 479-5830 Quincy _________________________________________________________________ I. INTRODUCTION __________________________________________________________________ This Handbook is intended to provide answers to some general questions commonly asked by individuals after the formation of a Limited Liability Company and to provide general recommendations for your consideration. This is not intended to cover most tax or other planning issues and you should consult your advisors on a periodic basis to discuss specific tax or planning issues. __________________________________________________________________ II. TAX MATTERS __________________________________________________________________ A. Taxpayer Identification Number A taxpayer identification number must be obtained from the Internal Revenue Service as soon as possible after forming the Company. B. Coordination of Initial Tax Matters Your accountant should be consulted to help coordinate the payment of all taxes required to be paid to the Internal Revenue Service, the Massachusetts Department of Revenue and any other state in which you do business (i.e. employee withholding taxes, sales taxes, estimated income taxes etc.). C. Filing of Annual Income Tax Returns Federal and state income tax returns must be filed for the Company annually and this should be coordinated with your accountant. __________________________________________________________________ III. OPERATING AS A LLC ___________________________________________________________________ A. Legal Considerations It is very important to follow formalities set forth in your Operating Agreement to help ensure that you obtain the benefit of the limited liability protection afforded to owners of a LLC. Generally, the owners are only liable for the debts of the LLC to the extent of the assets of the LLC. Thus, if the debts of the LLC exceed its assets the owners are usually not personally liable for the difference. Some exceptions to this rule would be if an owner personally guarantees debts of the LLC or personally engages in conduct which exposes him or her to personal liability. Similarly, if formalities are not followed in operating the LLC, creditors of the LLC can argue that the limited liability of the LLC should not extend to the owners and they should be held personally liable for debts of the business. It is also important to follow the operating formalities to ensure that the LLC is treated as an LLC for tax purposes and thus avoid potentially adverse tax consequences. B. Execution of Contracts and Documents All contracts and documents should be entered into by and signed in the name of the LLC (i.e. John Doe, manager of John Doe, LLC.). Do not sign in your individual name (i.e. John Doe). C. Employment Matters If the LLC is going to have employees who are not owners, you should be aware that a number of federal and state laws require the posting of notices at the jobsite. The laws often provide for fines in the event of failure to post the notices. Moreover, in some cases a short six-month limitations period for filing discrimination claims has been extended where the employee claimed ignorance of the law and no notices were posted. The notices can be obtained free from the appropriate governmental agencies or, for a small fee, from private companies which will also keep you apprised of any changes in the notice requirements. There is legislation in Massachusetts which requires employers with six or more employees to adopt a sexual harassment policy. Once adopted, the policy must be distributed to all current employees, provided to newly hired employees and posted in a prominent area of the work place. The law further requires that the policy be distributed annually to the employees. The Massachusetts Commission Against Discrimination has prepared a Model Policy which conforms to the requirements of the law. The LLC should also enter into employment contracts with its employees. Standard employment contracts with regular employees can be used to establish that they are employees at-will, who can be terminated with or without cause at any time (provided, of course, that the firing is not discriminatory or against public policy). Employment contracts with key employees are useful for a number of reasons, including helping to establish reasonable compensation for tax purposes and helping to prevent key employees from leaving and competing against the corporation. D. Use of LLC Letterhead LLC letterhead with the LLCs full name should be used in all business transactions and correspondence. E. Establishment of Bank Accounts Bank account(s) should be established for the LLC and all income generated by the business should be deposited into the business account(s). Similarly, all payables should be paid out of these account(s). Monies generated by the business should not be commingled with personal bank accounts or accounts of other businesses. When opening bank accounts for the LLC, an authorization should be completed stating who is authorized to sign checks and withdraw funds. F. Management of Business The Operating Agreement sets forth how the business will be managed and who has the authority to take various actions. Some LLCs are managed by a single member. Others are set up similar to a corporation with a Board of Managers who make the big decisions and officers who manage the day-to-day affairs of the business. G. Filing of Required Documents with the Secretary of State Initially, a Certificate of Organization is filed with the Secretary of States Office to establish the LLC. An Annual Report must be filed with the Secretary of States office each year. The filing fee is $500.00 and the report must be filed within 2 months after the LLCs year-end or a $25.00 late fee will be imposed. It is important to file these Annual Reports each year because if you fail to file the Reports the Secretary of State can administratively dissolve the LLC. If any information contained in the Certificate of Organization changes an Amendment must be filed with the Secretary of State. Except that if the name or address of the resident agent changes, you should file an appropriate Change of Resident Agent form. H. Change in Structure If you contemplate changing the structure of the LLC in the future (such as admitting new members, changing the management structure, merging or liquidating the LLC, etc.), it is imperative that you obtain legal and tax advice prior to approving the changes.  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