By Thomas D. DeMatteo
Vice President &
General Counsel
ABC Companies

A limited liability company is a business entity that combines the concept of a limited liability shield with the federal tax structure of a partnership.
This means that an LLC allows business income and losses to pass-through to its members, as in a partnership, while the individual members are not personally liable for the liabilities and obligations of the LLC. As most of you are aware, however, most lenders require personal guaranties for their bank debt.
Let's compare some key terms:
· Members in LLC's are equivalent to shareholders in corporations or partners in partnerships.
· Units in LLC's are the same as shares of stock in corporations.
· Governors are the same as directors.
· Articles of Organization are the same as articles of incorporation.
· An Operating Agreement is the same as by-laws in a corporation.
· A Member Control Agreement is the same as a shareholder Agreement in a corporation or a partnership agreement in a partnership.
The three key documents for an LLC are the Articles of Organization, the Operating Agreement, and the Member Control Agreement. Some of the required and/or important considerations in each of these documents are as follows:
Articles of Organization: An LLC is created upon the filing of the Articles of Organization with the applicable state filing office. Certain items are required by the state for the LLC to be created. They are the company's name, its registered office, agent and address for service of process, name of the organizer, and its period of existence.
Other items to consider including in the Articles of Organization are: a provision limiting the liability of governors for breach of fiduciary duty to the extent allowed by law; a prohibition against the transfer of certain ownership rights unless agreed to by a majority or super majority of the members, and any other limitations on voting rights that may be warranted such as the elimination of cumulative voting and pre-emptive rights.
Operating Agreement: This document is essentially the same as by-laws of a corporation. It contains the traditional provisions for: date, place, time and notice of member meetings; number and qualification of governors and their terms; how they are selected, nominated, and terminated; the designation of key managers and officers, and the designation of the membership units and how issued, recorded and transferred.
You should also include a provision for indemnification of governors, members and officers of the LLC. You should also provide that the LLC will be treated as a partnership for federal and state tax purposes.
Member Control Agreement: This is probably the key document for members to understand because this is the document that contains most, if not all, of your rights in the LLC. The key areas include provisions for: the transfer of units upon termination, death, disability or if you otherwise just want to sell; the valuation of the LLC, including its membership units; the method of valuation of the LLC and its units; and how profits and losses will be allocated, including capital contributions and distributions.
You should always seek legal counsel, particularly as it relates to the Member Control Agreement, because your position on each of these provisions will differ based on whether you are a majority or minority owner.
Thomas D. DeMatteo also is an adjunct professor of law at Hamline University School of Law in St. Paul, Minn.

Footnote: Fuchsteiner, Peter J., Organizational Documents for Limited Liability Companies in Minnesota, MN CLE (2004).