Naked LLC

Imagine that you must appear in public. You go to your closet. There is nothing there. You will be on display for the whole world to seem completely naked.

What is a Naked LLC?

Going out in public naked is what it is like to operate a business in a “naked LLC”. You are completely exposed. You have a naked LLC when all you do is file articles with the state authority. That is what you get with most if not all of the discount LLC deals you can find online. It is also what you get from many CPA’s and attorneys who set up LLCs.

LLC’s get clobbered every day in both Civil and Bankruptcy Courts. More often than not, it is either because they are naked, or because they were not put together in a way that actually works to protect.

Putting together the documentation an LLC needs is an art. Anyone can break eggs in a bowl. But it takes skill and experience to make a good omelet or bake a cake. Likewise, anyone can set up an LLC, but it takes skill and experience to establish one that actually protects.

A Naked LLC will NOT protect you. The protection comes from the structure and ancillary documentation of the LLC.

Fully Documented LLC

By Contrast to the naked approach, a fully documented LLC will have a complete set of operating and ownership documents. This will typically include an Operating Agreement, Certificates of Membership (Owners), Alternative Dispute Resolution provisions, Certificate of Power & Authority or similar resolutions, a Schedule of Assets, and other documents that affect the legal or operational status.

A fully documented LLC will address how the entity is to be taxed and, issues like who will serve as registered agent or statutory agent.

Importantly, to be effective at actually protecting what it is supposed to protect, in most instances an LLC should have more than one Member and be Manager Managed, NOT Member Managed. If the advisor or service helping you establish an LLC does not know why this is important,

The most effective LLC’s will also not be owned by a natural person. They will be owned by a Trust or another business entity. Find out why. It matters.

Finally, no matter how artfully an LLC is structured and documented, if it is not used and operated correctly, its protection can be sabotaged or undone. Operator error can frustrate the best of designs.

Getting What You Pay For

People sometimes ask why a fully documented LLC costs more than a naked LLC. There are several reasons. First, a fully documented LLC does the job where a naked LLC fails. Second, it takes more legal work, and a higher level of skill, experience, and expertise.

In fairness, sometimes, particularly for small start up low budget situations, a naked LLC may be sufficient, for a while. But when the value or the risk goes up, it is time to upgrade.

What to Do

If you have a naked LLC, get help. Have it reviewed. Call for a complimentary consultation.