As professionals operating professional limited liability company law firms in Oklahoma, our commitment to corporate governance standards surpasses those of standard limited liability company owners. This article explores annual best practices for corporate governance in Oklahoma professional limited liability company law firms, emphasizing the importance of maintaining a strong and secure barrier between business and personal assets. While limited liability companies can offer limited liability protection, adhering to annual best practices ensures the preservation of those protections. From filing annual certificates and maintaining law licenses to conducting business on behalf of the company and updating your operating agreement, meticulous attention to governance is crucial. By marking these annual goalposts, law firm owners can safeguard their assets and mitigate legal and financial risks.

In explaining limited liability company best practices, it can help to visualize building a brick wall to separate one’s business from one’s personal life. You don’t want a creditor from the business side of the wall to be able to reach across and grab assets from the personal side of the wall. Each of the best practices listed below is its own brick in the wall. Some bricks are like keystones – if they come out of the wall, the whole thing comes crashing down – but even the most seemingly benign of bricks is important. If you remove enough bricks from the wall, it leaves a hole big enough for creditors to reach through and grab your personal assets from the business side. In order to fully understand the annual best practices below, it's helpful to first have a brief history of how we got here.

HISTORY

The concept of limited liability for business owners emerged in the 19th century. In the United States, the first limited liability legislation was introduced in the state of New York in 1811, allowing businesses to be formed as joint-stock companies with limited liability for their investors. Up until 1977, if you wanted asset protection for your business, your primary option was to form some type of corporation. This was all well and good, but you paid an arm and a leg in taxes, and corporate governance requirements were very strict. If you got one governance measure wrong, it would be enough to “pierce the corporate veil,” and suddenly, your personal assets could be gotten at by creditors of your business. These high standards and costs eventually led to the birth of the limited liability company.

In the United States, the first modern limited liability company legislation was enacted in Wyoming in 1977. Wyoming's law allowed for the creation of a new type of business entity that combined the benefits of both corporations and partnerships. The idea gained popularity because it provided limited liability protection for owners while avoiding some of the tax burden and formalities associated with corporations. Following Wyoming's lead, other states in the U.S. began enacting their own limited liability company statutes throughout the 1980s and 1990s. Limited liability companies were introduced in Oklahoma in 1992.

Through Oklahoma case law over the last 30 years, we’ve come to learn that instead of the all-or-nothing approach to governance requirements for corporations, Oklahoma courts typically look at the same list of factors and do balancing tests instead. For a corporation, if you miss any piece of corporate governance, you’re out of compliance, and the corporate veil is pierced. For limited liability companies, the courts generally ask, “Are you mostly in compliance?” So if you forgot to do your annual minutes last year, all hope isn’t lost; your status may still be protected.

YEARLY REVIEW

Though you might be able to maintain liability protection if you miss some of the items below, it’s best not to leave anything to chance and, instead, it’s recommended that you visit all aspects of governance at least annually. The following are undertakings to visit every year to preserve your professional limited liability company status in Oklahoma.

File an Annual Certificate

Each year, you need to file an annual certificate with the Oklahoma secretary of state.[1] This certificate contains the current contact information for your professional limited liability company, such as its name, address and registered agent. Additionally, you need to include a certification that each member is licensed to practice law in the state of Oklahoma. This is one of those capstone bricks in your wall. If you’re not in compliance with the secretary of state, you’re not a professional limited liability company in Oklahoma.

Maintain Law Licenses

As a professional limited liability company, you and your members must maintain your professional licenses in good standing. Each member must be licensed and authorized to practice law in the state of Oklahoma.[2] Any changes in licensure status must be reported to the Oklahoma secretary of state.

Registered Agent

All limited liability companies in Oklahoma must have a registered agent. As attorneys, we have a tendency to just list ourselves as our own registered agents when we file our professional limited liability company paperwork with the secretary of state. That’s fine under certain circumstances, but you need to make sure you actually meet the requirements to serve as your firm’s registered agent. You must have a physical location, and you need to have someone there during regular business hours who can accept personal service. So if you’re a solo practitioner who spends a lot of time at the courthouse, you probably shouldn’t be your own registered agent.

Bank Accounts

Your professional limited liability company needs to have its own bank accounts separate from your individual accounts. As a law firm, you also need to make sure you have an IOLTA account to hold unearned client funds. Never use company or client funds to pay personal expenses. If it is necessary for owners to contribute additional money to meet payroll or pay other business expenses, document the additional infusion of funds either as a loan the company must repay or as additional equity for the contributing member. Have a business checking account and business credit card, and only use these for business expenses.

Ensure Adequate Business Capitalization

If a limited liability company is undercapitalized intentionally, the owners may become personally liable for claims against the company.[3] Whenever possible, make sure your firm has enough financial resources to adequately manage it. If your firm is undercapitalized, you should also consider getting good insurance policies. Most of us are probably aware of basic liability insurance and malpractice insurance but may be less aware that firms can also obtain errors and omissions insurance to protect members and managers from claims arising from their actions on behalf of the business.

Conduct Business on Behalf of the Firm

Owners and managers must hold themselves out as representatives of the business. For example, if they sign a document, they should do so on behalf of the firm and not in their individual capacity. They can do this by listing their titles after their name when they sign: for example, “John Doe, Manager.”

Make Your Professional Limited Liability Company Status Known

When you print your company name, it should include “PLLC” at the end: for example, “Law Office of Smith & Jones PLLC.” Business cards should display the full legal name of your professional limited liability company. If you have a website or retail space, make sure your full legal name is displayed on them correctly. Make purchases and pay invoices via a business checking account or a credit card that has the full name of the business on it. Create invoices in the full company name to send to your clients. Also, any contracts, leases or other documents you sign should be in the full company name.

Register All Assumed Business Names

If you ever refer to your firm as anything other than its full legal name, you need to register the alternate name as a trade name with the Oklahoma secretary of state. For example, if the legal name of your firm is “Law Office of Smith & Jones PLLC” but in your commercials you tell the public to call “The Smith & Jones Firm,” you need to register “The Smith & Jones Firm” as a trade name with the secretary of state.

Keep Detailed Business Records

It's essential to keep accurate and up-to-date records of your professional limited liability company’s activities. This includes financial statements, tax returns and other important documents. Proper recordkeeping will not only help you stay organized and comply with state and federal regulations, but it’s also critical to a judicial analysis of your governance. It may seem antiquated, but it’s still recommended to keep a physical record book as well.

Update Operating Agreement

If there are any changes to the ownership structure or management of your firm, you need to update your operating agreement accordingly. Your operating agreement needs to accurately outline the internal management and ownership of the firm to protect the interests of all members. It should also include provisions related to the legal services provided by the professional limited liability company, such as provisions related to conflicts of interest, confidentiality and client representation.[4] It is critical that your operating agreement accurately reflects how your particular firm is currently run. Don’t simply rely on an operating agreement form you found online or copied from another firm back when you were first hanging your shingle. If the terms of your operating agreement don’t match how you are actually operating, it could be found to be a sham document and just may be that brick that takes down the wall.

Hold Annual Meetings

As a professional limited liability company law firm, you need to hold meetings of the members at least annually to discuss and approve the firm’s activities. The requirements for minutes of meetings are more stringent for professional limited liability companies than limited liability companies. You need to maintain detailed minutes of all meetings that include a summary of the discussion and any actions taken. Make sure you’ve also followed the notice requirements laid out in your operating agreement prior to holding your meetings.

Renew Licenses and Permits

If your professional limited liability company requires any licenses or permits to operate, you need to ensure that they are renewed on time.

File Taxes

As a professional limited liability company, you are required to file annual state and federal tax returns. You may also need to file quarterly estimated taxes if your firm has significant income. Each member is also required to report their share of the professional limited liability company's income and losses on their individual tax return. Failure to file taxes can not only result in penalties and interest charges but it is also considered by courts when analyzing your corporate governance compliance.

Register in Every State You Do Business

Even though your firm is headquartered in just one state, you must also register as an out-of-state business (a “foreign entity”) in every other state you operate in. If you aren’t registered as a foreign entity in a state you are conducting business in, you will not be able to bring suit in that state – obviously, a big risk to avoid.

Avoid Illegal, Fraudulent or Negligent Acts

If you were on the fence about whether you should be engaging in illegal, fraudulent or negligent acts, this tidbit may not be the deciding factor for you. But if the threat of jail time and fines wasn’t enough to sway you, it’s also worth noting that committing illegal, fraudulent or negligent acts in and of itself can pierce the veil. Further, a professional limited liability company is an artificial legal entity that can act only through individuals. If a member or manager commits one of these acts on behalf of the firm, they may be personally liable for claims against the firm arising from the act. Make sure to have company policies in effect to avoid illegal, fraudulent or negligent acts by members and managers.

CONCLUSION

In summary, running a professional limited liability company law firm in Oklahoma requires careful annual attention to state and professional regulations. By following the best practices outlined above, you can preserve your professional limited liability company status and mitigate potential legal and financial risks. Your law firm will be able to operate with confidence, fortified by a robust corporate governance framework that upholds the integrity of your business structure. If you need help with any of these steps, consider consulting with an experienced attorney or financial professional well versed in working with the legal profession.

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ABOUT THE AUTHOR

Natalie K. Leone manages the business formation and estate planning divisions of Rivas & Associates PLLC. She lives in Broken Arrow with her three fabulous children, two rambunctious puppies and one sassy cat. She enjoys playing nerdy board games, doing overly ambitious home improvement projects and gliding around a ballroom dance floor.

 

 

 

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ENDNOTES

[1] Oklahoma Statutes, Title 18, Section 2005.3.

[2] Oklahoma Statutes, Title 18, Section 809, and Oklahoma Rules of Professional Conduct, Rule 5.5.

[3] Mattingly Law Firm, P.C. v. Henson, 2020 OK Civ. App. 19.

[4] Oklahoma Statutes, Title 18, Section 806.