LLCs, limited liability companies, can be wonderfully flexible entities for asset protection and estate planning. Just do not sell yourself short with a “form” LLC. By “form” LLC, I mean an LLC consisting of a fill-in-the-blank, canned, “form” operating agreement and little else.

Because clients do not know what they are missing, one size too often does fit all. “Form” LLCs are everywhere. Adding insult to potential injury, “form” LLCs cost as much as LLCs “tailored” to protect your assets, your heirs, your legacy.

“Form” LLC operating agreements are the main problem and it is not what they say, it is what they leave out. That is why LLC “form” books, the source of “form” LLC operating agreements, all warn against using their “forms” as anything but “outlines” or “skeletons” from which to build a client’s all important final LLC operating agreement.

The LLC operating agreement is the heart and soul of the LLC. The operating agreement establishes how the LLC will work, how LLC assets will be protected, how LLC owners will be shielded from liability, what happens to the business or investment in a crisis, virtually everything about the LLC is or can be governed by the LLC operating agreement. Yet by their very nature, “form” LLC operating agreements must be generic. They must be general enough to work for every client, in every state, and for every contingency. “Form” agreements are packaged on CDs often years before they are used and are most always used verbatim from the CD.

Ironically asset and liability protection enhancement, the overriding reason clients want LLCs and should use LLCs, is the "form" LLC's most glaring weakness.

"Form" LLC agreements have rock solid tax compliance provisions but are haphazard at best with asset and liability protection provisions. Tax compliance is federal law and uniform across the county. Asset and liability protection is a creature of state law and differs significantly from state to state. Thus generic "form" tax provisions work great and generic "form" asset and liability provisions do not.

Compounding the problem is attorney reluctance to modify “form” LLC operating agreements for fear of creating problems, especially problems that can be traced back to them. The generic nature of “form” operating agreements aside, LLC operating agreements are complicated tightly written legal documents. Attorneys know that changing one section will likely impact another section, create ambiguities, or create two sections at war with each other. For attorneys who do not draft their own LLC operating agreements leaving “form” operating agreements unmodified is a safer bet. Attorneys worry about malpractice too.

Attorneys who use “form” LLC operating agreements thus do not add asset and liability protection provisions and do not discuss anything but basic LLC options with clients for fear a client will want something that would require modifying the “form” agreement. Asset and liability protection enhancements and tailoring the LLC to client specific expectations and circumstances go unmentioned and undone.

Clients thus get bare bones LLCs without the benefits of discussing options and alternatives, without essential asset and liability protection provisions, and never know what they are missing. The use of "form" LLCs gets justified in two ways. First, it is customary attorney practice to use “form” documents and second, it would be too expensive if attorneys drafted their own LLC operating agreements. Unfortunately for clients the first is true. Happily for clients the second is not.

Clients need to look for attorneys that regularly organize LLCs and draft their own LLC operating agreements. An attorney that regularly draft their own LLC documents can add the asset and liability protection left out of “form” agreements, modify the agreements to fit client circumstances and expectations, and do so at a competitive price.

Clients need to ask questions of their potential attorneys. Does the attorney regularly organize LLCs? Does the attorney draft his/her own LLC operating agreements? What is included for the price besides just the operating agreement? How does the attorney involve the client in the process? What LLC options and choices are offered?

Your asset protection and your liability protection are worth the time to get the right attorney and the right LLC.

Attorney Mason Salisbury practices asset planning and estate planning and drafts his own LLC operating agreements with Pelzer and Salisbury, LLC in Charleston. He can be reached at msalis1219@aol.com.