Managing Limited Liability Companies in Lextree

Updated: April 1, 2024

What is a limited liability company or LLC?

A LLC is a product of state statute. Some states have adopted the Uniform Law Commission’s version of the Limited Liability Company Act; others have adopted their own LLC statutes.

As a general matter, LLCs provide a unique combination of the liability protection of a corporation and the tax status of a partnership.¹

There are typically two types of limited liability companies: member-managed and manager-managed. The flexible nature of the LLC and the evolving legal landscape and business practice mean that there are many permutations of LLC members and managers.

In this article, you will distinguish between member-managed and manager-managed, but Lextree will support any other breakdown.

Configure Lextree for limited liability companies

Whether you have one or many LLCs in your corporate structure, Lextree is an important tool to keep your LLCs, members, and managers straight. You can optimize Lextree to track and manage limited liability companies. This article will show you how to configure the Lextree administrative settings for LLCs and then how to add new entities that take advantage of those settings.

Even if you only have a few LLCs, this article will show you how to use Lextree settings in combination that will help you deliver more value to your client.

Customize forms of the organization

The first step is to customize Lextree for your LLCs. When you create your account, Lextree generates a default list of forms of organization. We will change that list to optimize Lextree for limited liability companies.

Navigate to Settings > Lookups, Folders & Custom Fields. The second tab is labeled Forms of Organization. Select that tab to modify the legal entity types.

Here, you can add the LLC types you want to support. Look at the forms of organization in the list. You can remove any types that you do not want to be available to your users. For example, Limited Liability Company is too general. So let’s start by deleting that form of organization. Select the trash can icon to the right of Limited Liability Company. That category of legal entity is now gone.

Use the field box labeled Add Form of Organization to enter each type of LLC. When you select the Submit button, the form of organization you typed will get added to the list and reload the form so you can them all quickly. You are going to do this step once. You are configuring Lextree for all of your users. Add the following Forms of Organization:

• Member-Managed LLC
• Manager-Managed LLC

You can always add other types of LLC in the future when you need them.

Customize document types

Customizing document types is an optional part of this set up process. Lextree contains several default settings that will likely be satisfactory for your partnerships. However, we can make some changes to optimize for limited liability companies.

Create new folder

Document folders allow you to group documents into a single topic. You can store different types of documents in a folder. Your users can place any type of document in this folder. Folders are also used across each type of legal entity.

Navigate to Settings > Lookups, Folders & Custom Fields > Folders. In the field box labeled Add Folder type Ownership Distributions. You will use this folder to store filings or notices about distributions to owners.

Create new document type

To illustrate how you can customize the document features for LLCs in Lextree, let’s add K-1 as a document type. A K-1 is the US Internal Revenue Service (IRS) schedule that partnerships file to report income for partners, assuming that your LLCs are treated partnerships for tax purposes.

Navigate to Settings > Lookups, Folders & Custom Fields > Lookups and select the Document Types tab (it will be the tab you land on).

Enter K-1 in the Add Document Type field and select Submit. This will add K-1 to your list of Document Types.

Create tags for tax status

Form of organization obviously influences taxes, but it is not determinative. Lextree provides a flexible solution for tracking tax status. You can use tags to quickly mark legal entities by tax status.

Navigate to Settings > Lookups, Folders & Fields > Lookups and select the Tags tab. In the Add Tag box type Pass Through or Disregarded or whatever LLC indicator you want to use and select Submit.

For the sake of balance, let’s also add a second tag Taxable using the same field and select Submit again. These two tags will allow you to bucket your legal entities easily. You can certainly add more tags or change these tags later.

This technique allows you to specify tax status as granular or coarse as you like. For example, you could add tag labelled 503(c)(3) instead of the more generic, Non-Profit.

Now that you have optimized Lextree for tracking LLCs through the administrative backend, your users can create and manage those LLC entities in the frontend. The additional LLC detail will allow you to run more powerful and useful reports about the entire corporate family.

We discussed five steps to customize Lextree for LLCs. However, only one of those steps is important: Customize forms of organization. That simple change alone will automatically create new reports and improve the quality of data about your legal entities.

Create limited liability companies in Lextree

You and your users can now take advantage of those changes. The backend customizations are simply available to users. There is no update process, no waiting.

Let’s add a new LLC, including the ownership structure. We will actually add three new legal entities to show the entire process:

• a Limited Liability Company (LLC), which is the primary entity for this example,
• a Corporation as a member, and
• a natural person as another member.

Add the LLC member

You do not have to start with the top of the corporate org chart in Lextree. In fact, Lextree will automatically build the org chart from ownership relationships you establish, no matter where you start. For this example, however, adding the corporate member first just allows us to make several ownership connections while staying on the main entity.

Navigate to the Entities menu. Select + Add to create a new entity.

Complete the following fields:

Legal Name: Corp Member, Inc.

Form of Organization: Corporation

Tags: Taxable

For the Tags field, click inside the field to see the available options. In this case, you should see the two tags you created earlier: Pass Through and Taxable.

Select Submit. Lextree will bring you to the detail page for Corp Member, Inc. However, we are done with Corp Member, Inc. for now.

Add the Limited Liability Company

Navigate back to the Entities menu. Select the +Add button.

Complete the following fields:

Legal Name: Blackacre, LLC.

Form of Organization: Member Managed LLC

Tags: Pass Through

Did you notice how the changes you made in the backend for Forms of Organization automatically appear in the Form of Organization field on the frontend? Same with the Tags?

Select the Submit button. Lextree will display the details page for Blackacre, LLC.

At this point, we have a corporation and a limited liability company. We need to create a relationship between the two and then add our other member. So we will work with the details page for Blackacre, LLC.

Manage the LLC in Lextree

Lextree provides several core functions to manage entities: documents, requirements, ownership, people (officers and directors), and tasks. To manage our limited liability company we will just work with documents and ownership, although we could easily add requirements, people, and tasks.

Create ownership structure

Add corporate general partner

With the Blackacre, LLC detail page in focus, select the Ownership tab. Now we will tell Lextree that Corp Member, Inc. is an owner of Blackacre, LLC.

Select the + Add button. Lextree will display the Add Ownership page.

In the Type field, choose Parent because we are saying that we want to add a parent entity to Blackacre, LLC which is in focus.

From the Entity field, choose Corp Member, Inc. Notice that our corporation is there. Enter 80 in the Ownership Percentage field. We will leave the Notes field blank, but you are welcome to enter notes about this ownership if you want. Select the Submit button.

Lextree will update the Ownership tab to show that Corp Member, Inc. is now a parent of Blackacre, LLC. By the way, if you were to navigate to the Corp Member, Inc. Ownership tab, you would see that Blackacre, LLC is listed as a subsidiary there.

Staying on the Blackacre, LLC Ownership tab, let’s add our individual member. We will illustrate a feature of Lextree, by assuming that we do not want to manage this individual member per se. It might be an individual with whom our corporate family has no other relationship except as a member. This means that we do not want to add the member to our corporate registry, but we do want them to show in our org chart.

Lextree calls owners and subsidiaries who are not in the corporate registry, Unrelated Entities. We will add two unrelated entities.

Add individual members (unrelated entities)

Navigate to Blackacre, LLC > Ownership. Select the + Add button. This will display the Add Ownership page again.

Select Parent in the Type field. Again, we want to identify a parent (one of the limited partners in this example).

We have not created the individual member yet, because we do not want them in our main entity registry. So they are not available in the Entity field. Under the Entity, select Add a new option.

The Add Unrelated Entity page allows you to add an Unrelated Entity in Lextree. An unrelated entity is simply an entity you need in an org chart or ownership structure, but not one you need to manage.

In the Name field, enter Jane Smith. You can skip the remaining fields except for Groups which determines which groups of users have access to this unrelated entity. Select Default by clicking inside the field to see available options. Feel free to choose Groups you have set up. Select Submit.

Lextree will return you to the Add Owner page and you will see Jane Smith. Lextree will remember Jane Smith. If you need to add her as an owner in the future, she will be available to select and you will not need to enter her name again.

Enter 20 in the Ownership Percentage field. Select Submit to save Jane’s ownership. Yes, you can enter fractional ownership percentages as decimal places. And, yes, Lextree will check that you have not exceeded 100% ownership.

Lextree will display the entity details page for Blackacre, LLC. If the Ownership tab is not displayed, select it. You should see two parents: Corp Member, Inc., Jane Smith.

At the top of the page is a button labeled Org Chart. Choose that button. Lextree will open a new window to display the owner organizational chart.

Adding more members in the future is easy. Just return to the Ownership tab and select + Add. Use the Add a new option link to add a member that you do not want to add to your registry.

Add LLC documents over the company life cycle

Select the Documents tab for Blackacre, LLC. Choose the + Add button to add a document. Look at the options in the Folder and Type fields. You should see Tax Distributions as a Folder option and K-1 as a Type option, if you made those changes to the backend described above.

Add LLC managers

To add LLC managers (or officers), select the People tab on the Blackacre, LLC details page. Select + Add to add a new manager. In the Title field enter Manager. Select Submit.

Conclusion

These are just a few of the changes to Lextree that you can make to track partnerships. Lextree can track any form of partnership, including General Partnerships, Limited Partnerships, Limited Liability Partnerships, Limited Liability Limited Partnerships.