The purpose of this memorandum is to outline some of the basic practices you should follow in the operation of your single member LLC(s).
1
Using Company Name
All contracts and leases relating to the business should be entered into by the company rather than by you personally. Accordingly, all documentation should be prepared in the name of each LLC. For example, "XYZ, LLC." It is critical that you always include the "LLC" as part of the company's name. Furthermore, when signing for the company, you should sign as a "Member" of the company. For example, your signature block should read:
XYZ, LLC
BY_____________________________
Fred Anonymous, Member
If you decide to appoint yourself as President of the LLC, then the signature block would look like this:
XYZ, LLC
BY_____________________________
Fred Anonymous, President
2
Keeping Financial Records
You should keep suitable financial records as are necessary to reconstruct the amounts of tax owed by the business to appropriate taxing authorities. You should keep these records for at least four years.
3
Commingling of Funds
Funds of the business should be kept in the company's name rather than by you personally. Separate bank accounts in the company's name should be created and you should not use these accounts for personal expenses. When you take funds out of the company for personal use, it should be done through a withdrawal which is specified as a distribution.
4
Distributions
You should not take distributions which render the company insolvent. A distribution renders a company insolvent if, after the distribution, either of the following circumstances exist: (a) the company is not able to pay its debts as they come due in the ordinary course of business; or (b) the fair value of the company's total assets is less than its total liabilities.
By following these basic guidelines, you will avoid some of the common operational mistakes made by single member LLCs. If you have any questions regarding this information, please do not hesitate to contact me.
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