Small Businesses

Indiana Series LLCs, Part V: Series LLC Operating Agreements

September 6, 2016 | Michael R. Smith

[The previous articles on this topic are here: Part I, Part II, Part III, Part IV.]

Now that we’ve discussed the formal public filings necessary to set up a master LLC and series, we’ll turn out attention to the content of operating agreements.

As mentioned in the last post, every master LLC must have an operating agreement, and prudence dictates that it be in writing, even though the statute does not, at least not expressly. As a starting point, the operating agreement for a master LLC should have all the same elements as an operating agreement for a traditional LLC.

Indiana Series LLCs, Part IV: Setting up an Indiana Series LLC

September 5, 2016 | Michael R. Smith

The first article on series LLCs contained some basic concepts and terminology. The second and third ones addressed the fundamental questions of whether a series is a separate entity (answer: yes, but it lacks some of the attributes of a separate entity) and of what defines or constitutes a series (answer, at least as contemplated by the Indiana statute: a portion of the interest in the master LLC designated as the series). We’ll return later to some other metaphysical questions, but this article discusses the more mundane issue, how does one set up a series LLC in Indiana?

Organizing the Master LLC

As with a traditional LLC, a master limited liability company is formed by filing articles of organization[1] with the Indiana Secretary of State. Ind. Code § 23‑18.1‑3‑1 and § 23‑18.1‑6‑1. An existing LLC can be converted to a master LLC with appropriate amendments to its articles of organization, but the amendment requires unanimous consent of the members, regardless of any provision of the operating agreement permitting the articles of organization to be amended with less than unanimous consent. Ind. Code § 23‑18.1‑3‑2. It appears that it is permitted, but not necessary, for the articles of organization to include the names of the series that may be designated. See Ind. Code § 23‑18.1‑6‑7, discussed below.

Indiana Series LLCs, Part III: What constitutes a series?

September 4, 2016 | Michael R. Smith

[Please read Part I and Part II before reading this article.]

The second of this group of articles on series limited liability companies addressed the question of whether a series is an entity under Indiana law and concluded that the best answer is probably, yes, even though it lacks some of the attributes that one would ordinarily expect of an entity. But exactly what is it that makes up a series?

The definition of “series”

Indiana Series LLCs, Part II: Is a series an entity?

September 1, 2016 | Michael R. Smith

[This is the second of several articles on series LLCs, especially Indiana series LLCs. Go here for Part I, which includes an introduction to the concept of series LLCs and some terminology.]

Is a series an entity?

That’s the question almost every lawyer asks when first introduced to series LLCs. It is really shorthand for a lot of other questions: Can a series enter into its own contracts? Can it sue and be sued in its own name? Can assets be titled in the name of the series, as opposed to the name of the master LLC? And so on.

Indiana Series Limited Liability Companies, Part I: Introduction

September 1, 2016 | Michael R. Smith

This is the first of several articles about series limited liability companies in general and Indiana’s new series limited liability company statute in particular – a “series series” of articles. (Sorry. I couldn’t resist.)

Even as lame as that joke is, it demonstrates that terminology in this area can be very confusing, and the confusion is compounded by the fact that the series LLC statutes in different states use different words for the same concepts. Here are some rules I’ll follow throughout these articles.

Generally, I’ll stick with the definitions contained in the Indiana statutes, and I’ll let you know when I don’t.

Benefit Corporations and Small Businesses — Part V

July 9, 2015 | Michael R. Smith

This is the final installment in a series of articles dealing with Indiana’s new benefit corporation statute in general and its applicability to small businesses in particular, and we now arrive at the ultimate question: Is it a good idea for a small businesses to incorporate as (or to convert to) a benefit corporation?

In our opinion, the best choice of entity for most small businesses is a limited liability company, not a corporation, and the new benefit corporation statute does not change that opinion. Although we think the benefit corporation statute is an excellent addition to Indiana corporate and business law, we believe the Indiana LLC statute already has enough flexibility to permit LLCs to adopt the same governing principles, policies, and procedures that are pre-packaged in the benefit corporation statute without giving up the other advantages that LLCs have over corporations in general.

First, the Indiana Business Flexibility Act allows LLCs to be organized for “any business, personal, or nonprofit purpose,” which certainly seems broad enough to include the combination of business and public benefit purposes for which benefit corporations are created. Second, all of the governance, transparency, and accountability provisions of the benefit corporation statute can be incorporated into a limited liability company’s operating agreement. Finally, certification as a B-Corp is not restricted to benefit corporations – essentially any form of business entity is eligible to be certified as a B-Corp, including LLCs.

Benefit Corporations and Small Businesses — Part IV

July 9, 2015 | Michael R. Smith

[This article is written by Rep. Casey Cox (R-Fort Wayne), the author of Indiana’s new benefit corporation statute and an attorney in the Fort Wayne office of Beers Mallers Backs & Salin, LLP, where he practices in the areas of business and corporate matters, real estate, and local government law. As we developed this series, Rep. Cox was very generous with his time and his insights into the new statute. For that and for this article, we are grateful, and we thank him. — MS]

The last few decades have seen a dramatic increase in the number of investors who not only seek a financial return but also want to invest their money is socially and economically responsible businesses, as well as an increase in the number of consumers who want to purchase goods and services from those businesses. Many of them are frustrated by the number of companies who claim to be good corporate citizens but do not provide the transparency for investors and consumers to prove it.

The Potential Drawback to Transparency

Benefit Corporations and Small Businesses: Part III

July 8, 2015 | Michael R. Smith

Part I of this series briefly discussed Indiana’s new benefit corporation statute as well as certification of a company as a B Corp by B Lab and some of the their possible advantages. Part II began a closer look at the details of the benefit corporation statute, including the question of whether the benefit corporation is a good choice for small businesses.

The “Benefit” Part of a Benefit Corporation

As we’ve mentioned before, a benefit corporation is one with purposes in addition to making money for its shareholders. All benefit corporations share the purpose of creating a general public benefit, defined as having an overall material positive impact on society and the environment. In addition, benefit corporations may also establish for themselves the purpose of creating a specific public benefit that serves one or more public welfare, religious, charitable, scientific, literary, or educational purpose or another purpose that goes beyond the strict interests of the shareholders.

Benefit Corporations and Small Businesses: Part II

June 20, 2015 | Michael R. Smith

Part I of this series briefly discussed Indiana’s new benefit corporation statute as well as certification of a company as a “B Corp” by B Lab and some of the possible advantages of certification and of incorporation under the new statute. Part II begins to look more closely at the details of the new law and to consider whether it makes sense for small businesses to incorporate under the new statute.

From a corporate law perspective, benefit corporations are, first and foremost, corporations subject to the Indiana Business Corporation Law, just like any other Indiana for-profit corporation. In our view, a corporation is not the best choice of the form of entity for most small businesses. For a number of reasons, including the tax alternatives available to LLCs, the “pick-your-partner” and charging order provisions of the Indiana LLC statute, and the fact that LLCs have fewer corporate formalities that must be observed (which decreases the possibility that the liability shield that protects the assets of owners from the creditors of the business will be disregarded through so-called veil-piercing), we believe that a limited liability company is a better choice than a corporation for most small businesses.

The above advantages of LLCs over corporations are the same – or even greater – for benefit corporations. For example, partnership taxation is not an option for benefit corporations; if that is important enough, a benefit corporation is not a viable alternative. In addition, the benefit corporation adds more required corporate formalities on top of those already imposed by the Indiana Business Corporation law, increasing the administrative burden and the possibility of weakening the liability shield protecting the assets of owners from the company’s creditors. In other words, for most small businesses, a benefit corporation will not be the best choice of entity for most small businesses, unless the advantages of incorporating as a benefit corporation outweigh the advantages of organizing as a limited liability company.

Benefit Corporations and Small Businesses: Part I

June 18, 2015 | Michael R. Smith

On January 1, 2016, Indiana will join nearly 30 other states with statutes authorizing a relatively new form of for-profit corporations known as a benefit corporation. The Indiana statute was created by House Enrolled Act 1015, which was authored by Rep. Casey Cox (R-Fort Wayne), and will be codified at Ind. Code 23‑1‑1.3.

Indiana’s benefit corporation statute, like most (maybe all) others, is based on a model statute developed by B Lab, a nonprofit organization that certifies businesses that meet certain standards for social and environmental performance, accountability, and transparency. There are currently 1287 businesses certified by B Lab, including some companies that were well known for their social responsibility long before they were certified, such as Ben & Jerry’s.

Sorting out the terminology