The Basics of Forming an Oregon LLC

Oregon Limited Liability Companies

When starting a new business, converting a sole proprietorship or other entity, or buying an investment property, forming an Oregon limited liability company (“LLC”) is a popular option.  LLC’s provide liability protection for personal assets, are relatively easy to set up, in some cases offer tax savings versus corporations, and tend to require less ongoing paperwork than other kinds of business entities.

1. The Operating Agreement

If multiple partners plan to go into business together, after selecting a unique business name, these partners will want to have a meeting and get everyone talking about ground rules for the business.  Who is contributing what or how much?  What are the ownership percentages?  Will everyone have an active role in the day-to-day affairs, or will there be a manager? What happens if someone wants out of the business?  How will their share be valued?  Can anyone sell their ownership stake to a third party?  These are just a few of the big picture questions to be discussed at the outset before moving forward.

Once partners agree on the big picture items, the next step is to work out the terms of an Operating Agreement.  The Operating Agreement is the governing document for the business.  It sets out all the key terms, such as the names, addresses, and shares of each owner (called “members”), the management structure for the business, the method of making distributions, how taxes will be handled, how member shares are to be valued for a departing member, and much more.  Although many new business owners skip straight to filling out Articles of Organization with the Secretary of State’s office, doing so without first executing an Operating Agreement can lead to problems.  If the members thereafter can’t agree on the terms of the Operating Agreement, the default state rules (in Oregon’s Limited Liability Company Act, ORS chapter 63) will apply to the business based on how the Articles were filled out, with possible unintended consequences.

As the business evolves, the Operating Agreement may need to be amended, which is often done to add new members or when there is a change in ownership percentages.

2. Articles of Organization

Once the Operating Agreement is executed, the next step is to file the Articles of Organization with Oregon’s Secretary of State.  This is the public-facing document for the business that provides only the most basic information, such as the names and addresses of the members, whether the LLC is member-managed or manager-managed, the name and address of the registered agent, the address of the principal place of business, and a few other details.  The addresses for the registered agent and principal place of business must be Oregon mailing addresses and cannot be post office boxes.  The registered agent must be a person or business located in Oregon.  It does not necessarily have to be one of the business owners.  The registered agent is the official recipient for all legal notices to the business.  There are companies that provide this service for an annual fee.  Alternatively, many business choose to have the most “hands on” owner act as the registered agent, so long as they live in Oregon.

3. Tax ID Numbers and Local Licensing

Except in certain cases where a sole proprietorship is to be converted to an LLC, the LLC will require a new IRS Employer Identification Number (“EIN”), which can be obtained online through the IRS website.

If the LLC plans to have employees, an Oregon Business Identification Number (“BIN”) will also be required.  The owners will also need to comply with any local city and/or county business licensing and tax registrations, such as the City of Portland Business License Tax and Multnomah County Business Income Tax.

4. Experienced Business Law Counsel

There are a number of other items and steps to be completed in properly forming and running an Oregon LLC, and each situation is different.  New or existing business owners considering the LLC entity should consult with experienced legal counsel to provide guidance based upon their particular circumstances and goals.

For a business law consultation, please call (503) 206-6401 or use the online scheduling tool.

The foregoing is not legal advice, nor is it intended as such, but is provided as general information only.  Reading this post does not create an attorney-client relationship with Southwest Portland Law Group, LLC or any of its attorneys.    






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