June 9, 2008
Last Revised: May 23, 2012 4:50 PM
I, Karl Loren, consider this as one of the most important Company Policies ever written. It concerns the restructuring future of Vibrant Life as well as the elevation of Clifford Woods as the person in charge of Vibrant Life.
There are many other changes described in this Company Policy. Not all of the information has been completely developed so this is still an incomplete story -- and will be revised as we move ahead.
Here is a PDF copy of the LLC drafting activity.
Here is the PDF version of the new LLC Operating Agreement.
Here is a link (restricted site) to the Nevada LLC law.
Here is a link to a PDF version of the official Nevada Secretary of State Form which had to be signed and Faxed back to Nevada to complete the filing of the LLC, Karl Loren LLC, Nevada.
An official State of Nevada request fof names of members and acknowledgment of the Formation of Karl Loren LLC Nevada is HERE.
Link to typical Partnership Resolution, December 28, 2007, indicating who has the Power of Attorney in General Partnership, Vibrant Life, CLICK HERE.
Some of the information about this restructuring is still also private, already planned, but not yet to be published. All of the below is now published even though most of it has been planned or in place for a long time.
Vibrant Life has operated as a general partnership under the jurisdiction of California for many years. Some while ago, by partnership resolution, Vibrant Life resolved to convert its partnership structure into an entity called a Limited Liability Company, formed in the State of Nevada.
Click here for extensive information on LLCs in general and the "Series Type" of LLC available in Delaware and probably Nevada.
If you do not study the above link the remainder of this Company Policy will not be completely understandable.
The new LLC will be called:
Vibrant Life LLC
When this Company files its first Federal Income Tax Information Return, it is allowed to change its name and also file as an LLC, not a General Partnership, as long as the LLC meets certain criteria.
Over the years, there has been confusion regarding Single Member Limited Liability Companies (SMLLCs) in general and specifically, how they can report and pay employment taxes.
An LLC is a new entity created by state statute. The IRS did not create a new tax classification for the LLC when it was created by the states; instead IRS uses the tax entity classifications it has always had for business taxpayers: corporation, partnership, or sole proprietor. An LLC is always classified by federal law as one of these types of taxable entities. (source)
If the LLC is a partnership, it should file a Form 1065, U.S. Return of Partnership Income. Each owner should show their pro-rata share of partnership income (reduced by any tax the partnership paid on the income), credits and deductions on Schedule K-1 (1065), Partner’s Share of Income, Deductions, Credits, etc. (source)
You will be required to obtain a new EIN if any of the following statements are true.
- You incorporate.
- Your partnership is taken over by one of the partners and is operated as a sole proprietorship.
- You end an old partnership and begin a new one.
You will not be required to obtain a new EIN if any of the following statements are true.
- The partnership declares bankruptcy.
- The partnership name changes.
- You change the location of the partnership or add other locations.
- A new partnership is formed as a result of the termination of a partnership under IRC section 708(b)(1)(B).
- 50 percent or more of the ownership of the partnership (measured by interests in capital and profits) changes hands within a twelve-month period (terminated partnerships under Reg. 301.6109-1). (source)
It already has a "Certificate of Formation" submitted and approved by the State of Delaware, naming the original creators, called "members" of the LLC.
An LLC operates subject to an "Operating Agreement" which is the document comparable to a "partnership agreement" for a partnership.
The Operating Agreement needed to start this new structure has been written. It is the nature of such operating agreements to be revised with the proper approval of the "members" and that will be done as necessary.
One of the important statements within "this first" operating agreement is that Vibrant Life LLC is a "Series Type" LLC under the laws of the State of Delaware. You can think of the word "series" as meaning a "sub LLC" or a "sub unit" of an LLC.
Thus there is Vibrant Life LLC, as the first in a "series" of several LLCs, all formed by the members as they decide, without further reference for approval by the State of Delaware. The NUMBER of sub-LLCs in this series is not stated at the origin of the system, but the fact that there IS a SERIES of these sub-LLCs is a matter of public record -- and that record has been made.
Every LLC created under the laws of Delaware must have a "registered agent" who maintains an office (to receive process) within the State of Delaware. Vibrant Life, LLC, has such a registered agent in Delaware.
No matter how many sub-LLCs there might be within Vibrant Life LLC, there is only one registered agent for all of them.
However, Vibrant Life may do business in any State or any part of the world where it is recognized as a legal entity. It is recognized in all of the States of the United States. While it is registered in the State of Delaware, it can "do business" any State. In most states it would also "register" to do business in THAT state. Registration to do business in California, for instance would generally mean that it has some physical business activity located within California, and that the LLC is registered with the Secretary of State of California as a "foreign" LLC (from a State other than California).
The same LLC (Vibrant Life LLC) could also register (if the laws required that) in any or many other states to do business in those areas. It may well be that it could operate in some areas where such registration is not needed.
It is of note that "operating" with a web-oriented business does not mean, in and of itself, that it is also then located anywhere other than Delaware. It could be registered in Delaware, as it is, and operate from an office in Texas (and be registered to do business in Texas. It could also make sales to anyone in any of the 49 other states than Texas, handle the sale, shipping from Texas and handle the collection of payments in another state (where it might or might not be registered depending on the laws of what type of activity requires "registration in that state." For instance, having a bank account in Florida, may or may not require that the LLC be registered in the State of Florida.
The legal term for these "sub LLCs is, simply: "Series."
Thus we have "Vibrant Life, LLC" as "Series 1" and there are several more planned. Each of these series can also have a name, either a meaningless name such as "Series 1A" or "Series: Vibrant Life LLC, Operations," "Series: VL Payments LLC" or Series VL Receipts" for a "separate LLC" (which is the same as saying a separate sub-unit). Each of these three could have some physical activity located in a different state -- allowing the Company, Vibrant Life LLC to have "parts" or "series" that operate in each of those three states.
It is the nature of an LLC that each LLC (or each sub-LLC, or each "series") is independent of any of the others. The fact that one of them become liable for a debt does NOT mean that any other sub-unit becomes or is liable.
The whole "system" of LLCs can file ONE Federal Tax return, a "consolidated return" which reflects the activities of income, expense and profits that might arise in any of the Sub LLCs (no matter whether they have a physical location in a State, or not, and not depending on which state they may have those activities).
It MAY be that the consolidated profits of one of these systems of series LLCs would be declared to be in one State where it might file a State Income tax return, or that might not be the case. Delaware has no State Income Tax, so many corporations, LLCs and Partnerships registered to "do business" in Delaware even when they have some activities in other States.
LLCs, like partnerships, file a Federal IRS Form 1065. This form is called a "pass through, or information" report. LLCs, like partnerships are not allowed to PAY any Federal or State taxes, but report a profit (or loss) and then provide each person within the LLC (usually called "Members") with a statement (called a Schedule K1) to show what part of the total profit is allocable to that one person or entity.
In addition to "natural persons" being "Members" of an LLC, a member may also be another LLC, a trust, a partnership or a corporation -- even a foreign entity. A foreign entity may be a "member of an LLC, but that would not necesarilly meant that the LLC can "do business" in any state without registering its non-US status. (Doesn't mean that would HAVE to register, either.)
THAT person or entity is the one who files his own tax return. Generally this would include a Federal Income Tax return and a State Income Tax Return, depending on his jurisdiction. (I, Karl Loren, years ago, wrote a land-mark book on "Partnership Taxation." My book specialized on how you could create a partnership with non-natural entities as partners, including LLCs and trusts.)
The LLC members can decide among themselves, and publish an "operating agreement" (privately, not for any Government or public view) stating how many Series to create and which of them, or which groups of them can file a separate consolidated tax return representing some group, and others can file different consolidated returns.
The flexibility of this structure, particularly under the laws of Delaware is very great.
The "operating" LLC, possibly called, legally, "Vibrant Life LLC" would be where the operations of the Company take place and, presumably where any liability for action by the Company would accrue.
For instance, a customer could get a bad bottle of vitamins -0- he could sue the operating Series of the LLC.
For instance, some person might have a suit against "Vibrant Life LLC" but that would not entitle him to any access to "VL Payments" LLC which might have lots of cash already allotted to pay bills -- but out of touch for a creditor of the Vibrant Life LLC (Operations).
For instance there could be a "Series: Vibrant Life Copyright LLC" which would hold the ownership of all the copyrights -- material written and published by Karl Loren, where the copyrights would be transferred (for valuable consideration) to a sub-LLC which could receive a license fee for the use (by Vibrant Life LLC Operations.
Generally the income of one LLC or of any group that is consolidated for tax purposes -- the one LLC or one group would have profits that would be payable to a Member, or Members who are members in one of more of the Sub-LLCs in that group.
Thus, the VL LLC Operations, the VL Receiving, the VL Payments -- all three of these LLCs could consolidate their income and expenses to declare an IRS Form 1065 which would name individual Members who receive distributions of those profits, receive a Schedule K1 (copy to the IRS) and pay taxes with their own tax form (for instance a Form 1040).
One of the expenses of this group of LLCs could be the license fees it pays to a fourth LLC (Series: VL Copyright LLC) or a fifth LLC (Series: VL Valuable Contract LLC) or any others including a "founder" such as Karl and Bonnie (Series: Founder LLC) where agreed profit amounts would be paid.
There is no end to the creative flexibility of the arrangements that can be made among the many Series (sub LLCs) within the total system.
One organizational scenario could be to have Steven Archibald as the only Member in the Vibrant Life LLC (Operations). He would be called an "Member-Manager."
Then, he could also the Member-Manager of the VL Payment LLC, and be in charge of bill paying.
However, initially he would then not also be a Member or a Manager of the VL Receiving LLC (where all sales receipts and credit card clearance deposits would be made). Who ever is the Member--Manager of THAT LLC (sub unit) might, just as within the Hubbard Management System, act like an FBO ("Flag Banking Officer") and allocate cash from his (receiving) checking account to the payment account on the basis of: Statistics of the operations, valid Weekly Financial Planning Reports with completed "CSW's" (Completed Staff Work). This LLC would "manage" from a distance the operations of Vibrant Life LLC and expect that unit to generate its own plans and programs, implement them, apply ethics formulas and conditions as appropriate and "step in" only when there was some outpoint within that "operating group."
One of the Series (Sub-LLCs) could be a separate taxable entity providing management assistance to other Series within the System, or to clients outide the system. For instance there could be the Series: Programming, Evaluations and Statistics Management VL LLC with a Member who was highly skilled in applying LRH Management Technology to any or all of the other Series in the group - either for an exchange based on improvement of statistics, or on a flat fee basis.
If you think of this whole LLC system has having its primary existence as a web site, with web pages taking advantage of Google Aps, and an "intranet" service within the System, you begin to get the idea of the scope this could all take. The Google Aps Intranet Service would allow any or all of the Series to share some or all documents, spread sheets, published (internally only) statistics and graphs. With this infrastructure in place a person, Member or not of one of the LLCs, could access the vital documents of any or all of the LLCs, and access that information from any PC in the world, simply by logging into his private account where he could receive raw data from others and then publish evaluations and programs for others to view on their restricted pages and then to implement in the various LLCs doing the actual operations and interchanges with the public.
This is not written with some finality -- but in a way to show the flexibility of the system -- the concept here is that we have management divided into different Series -- with each part having written responsibilities being watched over by one or more other Series.
Karl and Bonnie as retired founders would have no management control, but would have some indirect control over the cash flow from the VL Receiving LLC to the VL Payment LLC -- that "control" could be in the form of "targets" or "quotas" that are set by management itself, approved at an early point in the history of the System, then the control would be exercised by simple measurement of results compared with projected Gross Profits or payments to various parts of the "owner--member" class of Members.
Oh yes, Members can have different authorities and status. The LLCs can have voting Members and other Members who do not vote. The LLC can have profit-sharing Members and other Members who get flat license fees, or other moneys not based on profits.
There can be an LLC consisting of a business which provides products to Vibrant Life LLC, for sale. The purchases from this LLC which is within the entire system would be an arms-length purchase transaction between the two -- one would count the sale as part of its taxable gross income -- the other would count the "transaction" (then called a "purchase") as an expense of that LLC or group of LLCs. In this case there could be two different income tax returns submitted to the government and IRS audit would have to be able to find that the "transaction" was fair and "arms-length."
"Fair" would mean that the transaction is NOT structured so as to pass profits in some arbitrary way, different from the normal of business transactions.
Even those these transactions would seem to be the same as if they took place out side any ONE LLC, there could still be legal advantages to having them both in that same LLC (while filing separate tax returns).
It will take a wizard to keep the accounting records for all the entities within this one system of LLCs, to be sure that there are no violations of tax or other laws.
The concept of "transfer pricing" which is generally illegal, must be guarded against as going on among related entities.
Definitions of Transfer Pricing on the Web:
There is much more that could be written about the restructuring of Vibrant Life into a Series type Delaware LLC. This new LLC is a "living" entity -- with changes made in very basic structural characteristics in accordance with the self-decided "rules" for who it is, and how, changes in the Operating Agreement are made.
If this has seemed complicated, it may be, but the complications arise from the extreme flexibility of the Delaware law on Series LLCs.
Climb aboard for a fun journey.
Quotes from L. Ron Hubbard are copyright 1994 © by the L. Ron Hubbard Library. All rights reserved.