Tuesday, May 19, 2020
Teaching Moment: LLCs Don't Have "Corporate" Name Endings
I am teaching Business Associations this summer, and I am excited to get back in the classroom. Well, I was. Instead, I am teaching in virtual class room via Zoom. I am still glad to be interacting with students in a teaching capacity, but I sure miss the classroom setting. I am glad, though, to have this experience so I am closer to what this has been like for our students and faculty. I still have the benefit of my colleagues experiences, students who have been in the online learning environment, and a little time to plan, so it's better for me than it was for everyone in March. Still, there is quite a learning curve on all of this.
Over the past several years, I have asked students to create a fictional limited liability company (LLC) for our first class. It does a number of things. To begin, it connects them with a whole host of decisions businesses must make in choosing their entity form. It also introduces them to the use of forms and how that works. I always give them an old version of the form. This year, I used 2017 Articles of Organization for a West Virginia Limited Liability Company. It does a couple of things. There is an updated form (2019), so it gives me a chance to talk about the dangers of using precedent forms and accepting what others provide you without checking for yourself. (Side note: I used West Virginia even though I an in Nebraska, because Nebraska doesn't have a form. I use this one to compare and contrast.)
In addition, I like my students to see how most businesses start with entity choice and formation -- by starting one. It leads to some great conversations about limited liability, default rules, member/manager management choices, etc. Each year, I have had at least one person opt-in for personal liability, for example, for all members.
I also, which will shock no one, use the form to discuss the distinct nature of LLCs and how they are NOT corporations. And yet, the West Virginia LLC form tries to under cut me at each turn. For example, the form requires that the LLC name choose a "corporate name ending." From the instructions:
Enter the exact name of the company and be sure to include one of the required corporate name endings: “limited liability company,” “limited company,” or the abbreviations “L.L.C.,” “LLC,” “L.C.,” or “LC.” “Limited” may be abbreviated as “Ltd.” and “Company” may be abbreviated as “Co.” [WV Code §31B-1-105] Professional companies must use “professional limited liability company,” “professional L.L.C.,” “professional LLC,” “P.L.L.C.,” or “PLLC.” [WV Code §31B-13-1303]
Seriously, people. LLC are not corporate. In fact, choosing a corporate name ending would be contrary to the statute.
The form continues:
13. a. The purpose(s) for which this limited liability company is formed is as follows (required): [Describe the type(s) of business activity which will be conducted, for example, “real estate,” “construction of residential and commercial buildings,” “commercial painting,” “professional practice of law" (see Section 2. for acceptable "professional" business activities). Purpose may conclude with words “…including the transaction of any or all lawful business for which corporations may be incorporated in West Virginia.”] (final emphasis added)
Finally, the instructions state that
[t]he principal office address need not be in WV, but is the principal place of business for the company. This is generally the address where all corporate documents (records) are maintained.(final emphasis added)
My students know from day one this matters to me, and it's not just semantics. My (over) zealousness helps underscore the importance of entity decisions, and the unique opportunities entities can provide, within the default rules and as modified. My first day, I always make sure students see this at least twice: "A thing you have to know. LLCs are not Corporations!"
Is it overkill? Perhaps, we all have our things.
Oh, and it's time for West Virginia to add a 2020 update to the LLC form.