Limited Liability Company for IP Protection

Many people want to know if the Limited Liability Company is a good way to protect their rights as a producer , writer or artist.  The answer to the question is very similar to just about every question in law; that depends.

The media world is a lawsuit mecca.  This is the first principle.  Therefor, you will need to protect every property you create! You can also read LLCs and the Law.

The LLC or  Limited Liability Company is a hybrid type company that can choose taxation. Each state has its own laws about whether or not you must have bricks and mortar presence in that state and with regard to the residence of the company if you are not officially recognized by the Secretary of State; you may have to file a DBA or “Doing Business As.”

You should consider all of your options for Intelllectual Property Protection and Asset Protection.

There are two issues to consider for you choice of entity; one is the amount of protection provided and the other is the form of taxation.  Usually an informed attorney or accountant will be able to advise you which situation is best for your circumstances.  If you choose an LLC there are several things you must decide.

The Limited Liability Company as a shelter, but without without an operating agreement it may not provide adequate protection in the even that you are sued.

An LLC Operating Agreement is a primary contract among and between the Managing Members of an LLC.  The Operating Agreement governs the operation and business relationship between the members.  It is similar to the Bylaws of a corporation.  The careful crafting and drafting of the Operating Agreement is important to the protection of your Intellectual Property.

There are no laws that require what actually goes into an Operating Agreement, but keep in mind it is the base agreement between the members; first of all, in any business endeavor it is best to delineate in writing what the terms and conditions that the business will operate under.  There are statues that provide certain default rules. Some of them pertain to the overall nature of LLCs and some are state initiated.

An Operating Agreement insures that the court will look to the entity as an LLC abiding by certain business acumen under certain laws and taxation codes.  All LLCs should have Operating Agreements, even if they are owned by only one person.  It is important to have an Operating Agreement in the event of a lawsuit.  Some states are stricter in case precedence over the Operating Agreement and how the member(s) “cross their t’s and dot their i’s.”  You would not want to come without an Operating Agreement in the case of a lawsuit.  It may be a good idea to have a witness in the case of a single member LLC when signing the Operating Agreement.

In the case of singly owned LLCs, a court may look through the LLC to the individual as if there were not entity.  Many attorneys when they singly owned LLCs will try to pierce the corporate veil.  This means personal liability, where it could have been prevented.

In recent cases, courts have required the documents of the membership to be signed in the proper manner by all of the members.  The court will also look to see if the provisions of the agreement have been followed.

LLCs are either “member managed” or “manager managed.”  The initial members (owners) can decide whether they, as members, want to each be responsible for managing the LLC or whether they want to set up a Board of Managers (manager managed) and elect persons to be managers similar to the way a corporation is managed by its Board of Directors.  All of these members should sign the agreement.  If new members are brought into the LLC then the Operating Agreement should be amended with an Addendum and the provisions of the first and original Operating Agreement should be followed.

The Operating Agreement must structure the membership.  The membership or managers are structured either by percentage or by units of membership.  Usually the percentage of the equity units transfer in the rights to share profit and vote.

An LLC can also be organized with different classes of ownership interests, which provides flexibility for special allocations of profits and voting power.  As with most situations concerning Operating Agreements, attorneys should be consulted.

The laws surrounding LLCs do not generally require that there are officers.  However some banks require that there is a resolution permitting a certain officer with the right and authority over the bank account.  One person may serve in multiple roles.

Disclaimer: The information provided on this report is for educational purposes only and does not constitute the provision of legal advice.  A document preparation and filing service is not the substitute for legal advice and any new business owner seeking legal or professional advice regarding new business legal entity, tax or other legal matters should seek the advice of an attorney or accountant.