Meghan Day

Principal Solution Designer

Different types of legal entity documents

U.S. business owners filed a record-breaking 5.5 million new business applications in 2023 alone. These filings would have been accompanied by the formation documents — or legal entity documents — necessary for starting up various business entities.

These documents, also known as registration documents, generally aid entrepreneurs as they begin to form and organize their individual business ventures. However, as a business develops beyond its initial phases, other important documents become necessary to keep it on track. These are the operational documents that are used to control activity within the business as it proceeds, including:

• What legal entity documents are
• Sole proprietorship entity documents
• Limited liability corporation entity documents
• Corporation entity documents
• Best practices for managing legal entity documents

What are legal entity documents?

Legal entity documents are the official records and paperwork that recognize a business or organization as a legal entity. These documents ensure compliance with local, state and federal entity structure and operating procedures laws. As we look at how these documents affect the operations of various business types, it is important to pause a moment to consider the ideas of ownership and control.

These concepts will manifest differently depending on which type of business structure an entrepreneur chooses. The ownership and control of a business typically begins with some sort of agreement between the owners or founders and the management.

Ownership agreements usually concern the following fundamentals:

• Control of the entity (or the authority to act on behalf of the entity in carrying out business activity). Which person or persons has the authority to make business decisions and enter into legal agreements on behalf of the company?
• Percentage of entity ownership. If more than one owner jointly owns the company, the agreement should define each owner’s total ownership share.
• Entitlement to profit and responsibility for losses. Who stands to make money if the business goes well, and, just as importantly, who bears the responsibility for any debts if the business does not grow?

Each type of business entity will have an inherently different relationship with regard to management, operations and ownership. Your answers to the questions above will vary depending on which entity type you choose for your company.

The importance of legal entity documents

Legal entity documents are essential for making an entity official and how that business operates. Once filed, they become the foundation for compliance, operational clarity and risk management. These documents are critical for:

1. Legal recognition and protection: Filing formation documents legally recognizes the entity and distinguishes it from its owners. This distinction limits the liability of entity owners and members, safeguarding personal assets in case of lawsuits or debts.
2. Regulatory compliance: Filing annual reports, tax returns and other compliance documents on time ensures the business meets local, state and federal requirements, preventing fines or dissolutions. Businesses must also regularly update registered agent information and submit compliance forms to operate without legal interruptions.
3. Operational clarity: Governing documents like bylaws and operating agreements outline decision-making processes, leadership roles and membership obligations. Contracts and agreements, likewise, set clear expectations to minimize disputes.
4. Supporting financial management: EIN applications and tax-related documents ensure the business is appropriately set up to handle federal, state and local taxes. Sound financial practices can reassure investors and lenders.
5. Risk mitigation: Well-maintained documents, including meeting minutes and client contracts, are evidence in disputes or audits. Agreements also dictate governing ownership, profit-sharing and more, which helps resolve conflicts among stakeholders.

Sole proprietorship entity documents

A sole proprietorship is the most basic of business operations. Because a sole proprietorship has only one owner, issues of control or ownership operations are moot. In most states, there is no legal requirement to file documentation to start a sole proprietorship. Some possible exceptions to this are:

1. Certificate of assumed name (Doing Business As): This certificate aligns the assumed name, or the business's name, with the business owner’s name. Thus, it cements the bond between the two names, underscoring that sole proprietors are personally responsible for any debt or litigation brought upon their company. The sole proprietor must complete a form including the business name (assumed name), their legal name and contact information, the business address and the nature of the business. They can then file the form with the county clerk or state government online, by mail or in person. Some states require the business to publish the DBA in a local newspaper after registration.
2. Business license: Some cities or counties require someone to obtain a general business license to operate as a sole proprietor. Licensing ensures the sole proprietor operates legally and complies with local regulations and tax and financial obligations. Most license applications ask for the business name and address, the sole proprietor’s legal name and contact information, the type of business activity and the anticipated revenue or number of employees. Sole proprietors can apply for the license at a city or county government office.
3. Professional or industry-specific licenses: Businesses like hairstyling, construction or financial services may require special licenses or certifications even for a sole proprietorship. This ensures the sole proprietor meets industry-specific standards and regulations. Many industry license applications are filed with the relevant state or industry licensing board and require proof of qualifications, business name and address and details about services offered.
4. Employer identification number (EIN): Many sole proprietors use their social security number for tax purposes. However, they can use an EIN if they partner with other sole proprietors. An EIN is the business's tax identification number, and it allows sole proprietors to hire employees, open a business bank account and separate personal and business finances. To obtain an EIN, sole proprietors must apply through the IRS website with their name and social security number, the business name (if applicable), the business address and the reason for applying.
5. State tax registration: If a sole proprietor sells goods or services subject to a sales tax, they also need a state sales tax permit or resale certificate. This permit ensures the sole proprietor collects and remits sales tax to the state. Sole proprietors must file with their state’s Department of Revenue or Taxation with information like business name and address, description of products or services, anticipated monthly sales and their EIN or SSN.
6. Federal Tax ID numbers: Sole proprietors in industries like alcohol or firearms may need federal tax identification numbers or permits to operate legally. They must file with the relevant federal agency and follow agency-specific instructions, which usually ask for details like business and owner information, industry-specific information and financial information.

Beyond the Certificate of Assumed Name and any local or legal license requirements, a sole proprietorship requires no additional operational documents, though good practice suggests that all ventures create a business plan to guide operations.

Partnership legal entity documents

Entering into a business partnership can be a challenging and rewarding experience. In the best partnerships, each member complements the other, creating a whole greater than the sum of its parts. For a partnership to operate at its best, experts advise that each partner collaborate on the crafting of certain legal entity documents before the business gets off the ground:

1. Partnership agreement (PA): The PA should outline each partner’s control over the business, ownership interest within the business, and each partner’s duties and responsibilities. It governs the partnership’s operations to prevent disputes and misunderstandings. A PA should detail each partner's ownership interest, roles, duties and decision-making authority, profit and loss distribution, conflict resolution, terms for admitting or removing partners and procedures for dissolving the partnership. The agreement may not need to be filed with the government, but both partners should sign and securely store it.
2. Doing Business As (DBA): If the partnership operates under a name other than the partners’ legal names, it must file a DBA with its state or local government to ensure transparency and compliance. The filing process is similar to that of a sole proprietorship, but the documents should include the assumed name of the partnership and legal information for both partners.
3. Certificate of Limited Partnership: These are required for limited partnerships and document the roles of general and limited partners. They also formally register the business with the state. A certificate of limited partnership includes the name and address of the partnership, the names and roles of general and limited partners, the business purpose, the duration of the partnership and registered agent information. Partners can then file the certificate with their Secretary of State.
4. LLP Registration: This is required for limited liability partnerships. Registering as such offers liability protection for the partners by distinguishing them from their partnership. To register as an LLP, partners must apply with their Secretary of State and provide information like partnership name and address, partners' names, business purpose, proof of liability insurance (required in some states) and registered agent information.
5. General business license: Most partnerships must obtain a local or state business license. The process to file is the same as for a sole proprietorship, but partners will need to provide the partnership name and address and the names of all partners.
6. Industry-specific licenses: Like sole proprietors, these licenses are required for partnerships operating in more heavily regulated industries like healthcare, construction or food services.
7. EIN: Partnerships must apply for an EIN with the IRS because the entity is taxed separately from the individual partners. This process is similar to that of a sole proprietorship.
8. State tax registration: Partnerships may need to register for sales tax, income tax withholding or other state-specific laws. They can apply in the same way sole proprietors do.
9. Partnership tax returns: Partnerships annually file IRS Form 1065 (U.S. Return of Partnership Income). The form requires partnerships to report total income and expenses, allocated income or loss for each partner and any credits or deductions passed to partners. Each partner will also receive a Schedule K-1, which details their share of income or losses, to report on their individual tax filings.

In addition, the following are considerations to keep in mind when drafting a partnership agreement:

• Governance: What are the core values essential to running the business? What rules should guide the course of the business, and what mechanisms can be created to ensure those rules are followed?
• Relationships: It is important to establish and define the business relationship between the partners.
• Duties and Responsibilities: What actions will be expected of each partner? In what ways will each partner be held accountable?
• Profits: How will profits be distributed among the partners?
• Dispute Resolution: Establishing a mutually agreed-upon method of resolving possible problems before they arise can be vital for maintaining a healthy partnership.
• Dissolving the Partnership: What happens when one partner wants to leave the business? The possibility of selling off a partnership is included in this.

If the partners do not create their own Partnership Agreement, their operation is automatically ruled by the standard partnership laws for their state.

Limited Liability Corporations (LLC) entity documents

LLC legal entity documents are more structured than those of a sole proprietorship. They establish the LLC as a legal entity with the state and come with specific compliance considerations. Documents include:

1. Articles of Organization (Certificate of Formation): Filed with the Secretary of Date, this document establishes the LLC as a legal entity. The form includes the LLC name and address, the name and address of the registered agent and the management structure. An LLC owner could also opt to include the duration and purpose of the LLC.
2. Operating Agreement: In some states, LLCs are required to create an Operating Agreement. An Operating Agreement lays out the basic ideals governing the company and the expectations of its members. In particular, Operating Agreements define who owns the LLC, what duties and obligations each member has, governance protocols, decision-making and process for resolving disputes or leaving the LLC. As with the partnership agreement, many states have a default operations agreement that applies if the LLC does not create its own.
3. EIN: An EIN becomes the LLC’s tax identification number. It is required for federal tax filing, hiring employees and opening a business bank account. The process is similar to a sole proprietorship; however, the application will include the LLC name and address and the responsible party’s Social Security Number. You can submit Form SS-4 through the IRS website for free or by mail.
4. Initial report or statement of information: This legal entity document provides the state with key information about the LLC’s members, managers and registered agents. However, only some states — including California and Florida — require it. LLC owners can file it with their Secretary of State shortly after forming the LLC and provide information like LLC name and address, names and address of members or managers, registered agent information and a description of the LLC’s activities.
5. Business license: LLC members or managers can file a business license in the same way as a sole proprietor. However, they will include the LLC name and address and information about the owner or responsible party on all forms.
6. DBA: If an LLC operates under a name other than its legal name, it must file a DBA. This form can be filed with the county clerk’s office or a state agency — depending on the state — and must include the LLC name and address, proposed DBA name and a description of business activities.
7. State tax registration: LLCs should follow a similar process as sole proprietors to comply with state tax laws. In addition to sales tax, however, LLCs may also need to consider employer or franchise taxes and provide their LLC name, address, EIN and tax-related information to their Department of Revenue or Taxation.
8. Annual Report: Depending on the state, LLCs file an annual report with their Secretary of State. The report updates the state on the LLC's status, including member or management information. LLC managers must supply the LLC name and address, the names and addresses of members and/or managers and registered agent information.
9. Industry-specific licenses or permits: Following the same process as sole proprietors, LLCs must file with relevant state or federal licensing boards to operate in heavily regulated industries like healthcare, food services or construction.

Corporation entity documents

There are several types of legal entity documents required of corporations:

1. Articles of Incorporation (Certificate of Incorporation): This document establishes the corporation as a legal entity with the state. It includes the corporate name and address, the purpose of the corporation, names and addresses of incorporators, the registered agent name and address and the number and types of authorized shares. Owners can file with the Secretary of State or equivalent agency.
2. Corporate bylaws: The purpose of the corporate bylaws is to define the operating procedures within the corporation. Bylaws may cover a wide range of subjects, but at the very least, they should provide the following information:
   1. Name, address and principal place of business
   2. A list of directors and corporate officers
   3. Procedures for the election and appointment of officers
   4. Terms of service
   5. The amount of stock the corporation is authorized to issue
   6. Rules for director and shareholder meetings
   7. Standards for corporate record-keeping
   8. Procedures for amending the Articles of Incorporation and Bylaws
3. EIN: Corporations need an EIN for the same reasons as other entities, namely to allow them to file taxes, hire employees and open bank accounts. A corporation can apply through the IRS website or submit Form SS-4 by mail or fax.
4. Initial Report or Statement of Information: This is the same report that an LLC will file. However, a corporate report will focus on the corporation’s directors, officers and registered agents.
5. Stock certificates and ledger: This documents the issuance of shares and ownership in the corporation. The form includes the name of the shareholder, number and class of shares issued, date of issuance and signatures of authorized corporate officers. Rather than filing with the state, these documents become part of the corporate record.
6. Shareholder Agreement: A Shareholder’s Agreement is a document drawn up among shareholders to define their ownership and rights specifics. These documents are not necessarily publicly filed, and their contents may vary from company to company. In general, Shareholder’s Agreements concern the following issues:
   1. Shareholder eligibility
   2. Procedure if a shareholder leaves, dies or is fired
   3. Shareholders’ rights and obligations
   4. Valuation of stock for internal purposes
   5. Entitlement or obligation to repurchase stock
   6. Information on the regulation of the shareholder’s relationship
7. Minutes of organizational meeting: Meeting minutes are part of the corporate records. They should detail the first meeting of the board of directors, where bylaws are adopted and officers are appointed. Minutes should include the date, time and location, as well as the names of attendees and resolutions adopted during the meeting.

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Meeting minutes help to paint a clear picture of meetings and prevent legal risks. Read our guide, which teaches you how to take effective meeting minutes with a template to help.

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8. Business licenses and permits: Like other entities, corporations need permits to operate legally in their jurisdiction and/or industry. The form, filed with local, state or federal agencies (depending on the business type and location), includes the corporate name and address, a description of business activities and the names of directors and officers.

9. State tax registration: Corporations follow the same process as other entities to comply with state-specific tax obligations. They provide their state Department of Revenue or Taxation with the corporate name and address, EIN and tax-related information and a business description.

10. Annual Report: Corporations, like LLCs, must provide the state with updated information and ensure they pay applicable taxes. The report is filed annually with their Secretary of State and includes the corporate name and address, names and addresses of directors and officers and registered agent information.

Best practices for managing legal entity documents

Understanding the different legal entity documents is important. However, properly managing those documents is crucial to ensure compliance, protect legal interests and maintain efficient business operations. Implementing best practices can help businesses insulate themselves from potential risks and streamline operations. To achieve these benefits, you should:

1. Maintain a centralized document repository: Store all documents in a secure, centralized repository that authorized personnel can easily access. Organize all documents according to the document type. While cloud storage solutions like Google Drive can be helpful, entity management software is the best way to keep documents secure, organized and up to date.
2. Regularly update and review corporate documents: Most entities evolve from their initial filing. This may be because an LLC member moves or someone wants to leave a partnership. Whatever the change, reviewing and updating legal entity documents regularly is important to ensure they remain accurate and compliant.
3. Properly store sensitive information: Most legal entity documents include highly sensitive information about the entity and its owner. Use tools to encrypt and securely store Social Security Numbers, financial records and employee details. Access controls can further restrict who can view, edit and download sensitive documents.
4. Create and follow document retention policies: Outline how long you’ll keep each legal entity document and when you’ll dispose of it. This policy should simply comply with federal, state and industry regulations and apply to both physical and digital documents. Following such processes ensures documents are accurate, organized and not cluttered by out-of-date forms.
5. Ensure compliance with state and federal filing requirements: Part of running an entity is filing the right forms at the right time. Stay on top of filing deadlines to avoid costly penalties or the risk that your corporation will be dissolved. Track important deadlines for state and federal regulations and file financial documents according to tax law deadlines.
6. Implement version control and audit trails: Log any revisions to legal documents. Maintaining clear records in this way ensures you have access to the most current documents and can easily trace the history of any changes — which can be essential during audits.

Breaking barriers to good entity governance & legal entity document management

Maintaining a thriving business is hard work. Crafting operational documents can help business owners plan and organize their business ventures to maximize opportunities. However, the key to a successful entity is learning to embrace best practices so entity management becomes a pillar of strategic governance.

Download our free white paper to learn how technology can break the many barriers to good entity governance and legal entity document management — unlocking a more mature entity governance strategy that drives profits.

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