Documenting Credit PDF

DIMENSION 6 - 56 NOTES: DOCUMENTING THE CREDIT There are two important steps in documenting the credit: understanding the type of borrowing entity, and elements of loan documentation. In this section of Dimension 6 we will provide a general discussion of each topic. It is always important to underst...

DIMENSION 6 - 56 NOTES: DOCUMENTING THE CREDIT There are two important steps in documenting the credit: understanding the type of borrowing entity, and elements of loan documentation. In this section of Dimension 6 we will provide a general discussion of each topic. It is always important to understand the legal requirements to accurately document loans in your state, and to consult your legal counsel for specific transaction documentation at your bank. BORROWING ENTITIES, AUTHORITY, AND EXECUTION To put together an enforceable loan documentation package, you must understand the type of entity. This is true for borrowers, guarantors, and third party security interest grantors. Equally important, you must know who is authorized to sign the loan documents. In this section we will provide an overview of these borrowing entities: Sole proprietor. General partnership. Limited liability partnership. Limited partnership. Limited liability limited partnership. Joint venture. Corporation. Limited liability company. Nonprofit corporation. CRC US Body of Knowledge Trust. Estate and guardianship. SOLE PROPRIETOR A sole proprietor is an individual operating as a business. There is no separate business entity, only the individual operating the business. The sole proprietor is personally liable for all debts of the business. You can look to the owner’s personal assets to satisfy claims. The sole proprietorship’s life is finite; if the owner dies or becomes incapacitated, the business ends. A sole proprietor can do business under another name (e.g., Joseph Nusser operates as Jiffy Market). DIMENSION 6 - 57 Preferred ID: Current driver’s license with photograph or your own personal knowledge of the individual’s identity. If the borrower is doing business under an assumed name (also known as a d/b/a, a trade name, or fictitious name), obtain a copy of the assumed name filing permitted or required in your state. AUTHORIZATION Generally, an individual may commit to borrow money after reaching the age of majority (18 in most states or 21 in a few states) if they have not been declared mentally incompetent. A person’s age can be verified by a driver’s license. Mental competency is usually assumed unless there are appearances to the contrary. When another person is signing on behalf of the sole proprietor, obtain a power of attorney from the signer. In some states a recording may also be necessary. The power of attorney should be durable and specific. A durable power of attorney is one that continues to be effective even if the grantor becomes mentally incompetent after granting the power. A specific power of attorney is limited in coverage to the transaction contemplated. When in doubt, have the power of attorney reviewed by your legal counsel. SIGNATORY REQUIREMENTS An individual doing business as (d/b/a) another name should sign his or her correct legal name with the d/b/a noted only if required elsewhere in the loan documents—not in or above the signature line. The d/b/a should be noted in the loan documents only if requested by the customer. This should never give rise to an inference that the d/b/a is the borrowing entity. Example of Signature: John R. Brown Example of d/b/a in text: John R. Brown, d/b/a Valley Variety Store NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. IDENTIFICATION NEEDED DIMENSION 6 - 58 NOTES: SPECIAL CONSIDERATIONS If your state is a community property state, review the applicable laws and identify what restrictions apply to executing judgments against and pledging of community assets. Ten states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—use some form of the community property system to determine the interest of a husband and wife in property acquired during marriage. Under the community property system, the general rule is that all property acquired during the marriage is community property, owned one-half by each spouse. Property received by inheritance or gift and property owned before marriage is separate property. Obtain signatures on guaranties and collateral documents as dictated by the laws in your state. Consult with your legal counsel. A married woman should sign using her own name. –– Example: “Jane T. Brown” not “Mrs. John Brown.” COMMENTS Consider obtaining a legal opinion on the adequacy of the documents delivered to you. Identify any legal issues, as opposed to business issues, and use legal counsel to resolve them. You should not attempt to resolve legal issues on your own even if you have a law degree. Your primary focus is customer service. CRC US Body of Knowledge In non-community property states, the Equal Credit Opportunity Act (ECOA) prohibits requests for a guarantee from a spouse. A lender may request “more creditworthy co-guarantors” and may accept spouses’ guarantees if the guarantors volunteer them. Federal Reserve Board’s Regulation O prohibits making loans to insiders or their related interests unless the loans are made on substantially the same terms as those prevailing at the time for comparable transactions with other persons. The loans also must not involve more than normal risk of nonpayment. There are also individual and aggregate lending limits and periodic reporting requirements. DIMENSION 6 - 59 A general partnership is a business operated by two or more general partners. Partnership assets, liabilities, and ownership are accounted for separately and distinctly from the personal assets and liabilities of individuals. However, the individual partners are liable for the partnership debts, and their personal assets are exposed to liability for the debts. Each general partner is by law an agent of the partnership. IDENTIFICATION NEEDED Partnership agreement. General partnerships do not always have written partnership agreements. Obtain the agreement from the partnership. If there is no formal written agreement, obtain a written statement that none exists. Partnership certificate. If required by the state in which the partnership is doing business, you can obtain a copy from your customer or from the appropriate agency. AUTHORIZATION You need to obtain a partnership resolution to borrow, guaranty, or grant collateral interests, whichever is applicable. It is good practice to do this even if the agreement states who can borrow, give guarantees, or grant collateral interests in assets on behalf of the partnership. SIGNATORY REQUIREMENT The legal names of all designated partners or one or more of the general partners as designated in the partnership agreement are required. Each signature appears after the word “By” and above the typed or printed name followed by a comma and the words “Partner” or “General Partner.” Example: XYZ Partnership By______________________________ John R. Brown, General Partner By______________________________ Mary P. Smith, General Partner NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. GENERAL PARTNERSHIP DIMENSION 6 - 60 NOTES: If your state is a community property state, review the applicable laws and identify what restrictions apply to executing judgments against and pledging of community assets. Ten states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—use some form of the community property system to determine the interest of a husband and wife in property acquired during marriage. Under the community property system, the general rule is that all property acquired during the marriage is community property, owned one-half by each spouse. Property received by inheritance or gift and property owned before marriage is separate property. Obtain signatures on guaranties and collateral documents as dictated by the laws in your state. Consult with your legal counsel. A married woman should sign using her own name. –– Example: “Jane T. Brown” not “Mrs. John Brown.” COMMENTS Consider obtaining a legal opinion on the adequacy of the documents delivered to you. Identify any legal issues, as opposed to business issues, and use legal counsel to resolve them. You should not attempt to resolve legal issues on your own even if you have a law degree. Your primary focus is customer service. In non-community property states, the Equal Credit Opportunity Act (ECOA) prohibits requests for a guarantee from a spouse. A lender may request “more creditworthy co-guarantors” and may accept spouses’ guarantees if the guarantors volunteer them. CRC US Body of Knowledge Federal Reserve Board’s Regulation O prohibits making loans to insiders or their related interests unless the loans are made on substantially the same terms as those prevailing at the time for comparable transactions with other persons. The loans also must not involve more than normal risk of nonpayment. There are also individual and aggregate lending limits and periodic reporting requirements. DIMENSION 6 - 61 A limited liability partnership is a general partnership that has qualified as a limited liability partnership by complying with applicable state registration laws. Not all states have approved limited liability partnerships. The partners in a limited liability partnership are not liable for the debts of the partnership unless the debts existed prior to the election to become a limited liability partnership or they have guaranteed the debts. This means they would be liable for any unpaid term debt or revolving credit debt that existed at the time the registration was completed. They would not be liable for any new debt that was not paid, including a renewal of an existing revolving line of credit. They are permitted to participate in management of the partnership business. IDENTIFICATION NEEDED Partnership agreement. General partnerships do not always have written partnership agreements. Obtain the agreement from the partnership. If there is no formal written agreement, obtain a written statement that none exists. Partnership certificate. If required by the state in which the partnership is doing business, you can obtain a copy from your customer or from the appropriate agency. Proof of registration for limited liability partnership status. Obtain the certificate from your customer or from the appropriate agency. AUTHORIZATION You need to obtain a partnership resolution to borrow, guaranty, or grant collateral interests, whichever is applicable. It is good practice to do this even if the agreement states who can borrow, give guarantees, or grant collateral interests in assets on behalf of the partnership. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. LIMITED LIABILITY PARTNERSHIP DIMENSION 6 - 62 NOTES: SIGNATORY REQUIREMENT The legal names of all designated partners or one or more of the general partners as designated in the partnership agreement are required. Each signature appears after the word “By” and above the typed or printed name followed by a comma and the words “Partner” or “General Partner”. Example: XYZ, L.L.P. (or Limited Liability Partnership) By John R. Brown, General Partner By Mary P. Smith, General Partner If your state is a community property state, review the applicable laws and identify what restrictions apply to executing judgments against and pledging of community assets. Ten states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—use some form of the community property system to determine the interest of a husband and wife in property acquired during marriage. Under the community property system, the general rule is that all property acquired during the marriage is community property, owned one-half by each spouse. Property received by inheritance or gift and property owned before marriage is separate property. Obtain signatures on guaranties and collateral documents as dictated by the laws in your state. Consult with your legal counsel. A married woman should sign using her own name. CRC US Body of Knowledge –– Example: “Jane T. Brown” not “Mrs. John Brown.” DIMENSION 6 - 63 Consider obtaining a legal opinion on the adequacy of the documents delivered to you. Identify any legal issues, as opposed to business issues, and use legal counsel to resolve them. You should not attempt to resolve legal issues on your own even if you have a law degree. Your primary focus is customer service. In non-community property states, the Equal Credit Opportunity Act (ECOA) prohibits requests for a guarantee from a spouse. A lender may request “more creditworthy co-guarantors” and may accept spouses’ guarantees if the guarantors volunteer them. Federal Reserve Board’s Regulation O prohibits making loans to insiders or their related interests unless the loans are made on substantially the same terms as those prevailing at the time for comparable transactions with other persons. The loans also must not involve more than normal risk of nonpayment. There are also individual and aggregate lending limits and periodic reporting requirements. LIMITED PARTNERSHIP A limited partnership is made up of one or more general partners and one or more limited partners and is governed by the Uniform Limited Partnership Act (ULPA). The purpose of a limited partnership is to allow one or more individuals to provide capital without having to assume liability for debts. Limited partners are not liable for the debts of the partnership unless they have guaranteed the debts. They can only lose the amount of their investment in the partnership. They are not agents of the partnership and take no part in control or management of the business. General partners control the activities of the business and have full liability. IDENTIFICATION NEEDED Limited partnership agreement. A limited partnership must have a written agreement. Obtain the agreement from the partnership. A Certificate of Limited Partnership. Obtain the certificate from your customer or from the appropriate agency in your state. AUTHORIZATION You need to obtain a partnership resolution to borrow, guaranty, or grant collateral interests, whichever is applicable. It is good practice to do this even if the agreement states who can borrow, give guarantees, or grant collateral interests in assets on behalf of the partnership. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. COMMENTS DIMENSION 6 - 64 NOTES: SIGNATORY REQUIREMENT The legal names of all designated partners or one or more of the general partners as designated in the partnership agreement are required. Each signature appears after the word “By” and above the typed or printed name followed by a comma and the words “General Partner” for a limited partnership. Example: XYZ, L.P. (or Limited Partnership) By John R. Brown, General Partner By Mary P. Smith, General Partner If your state is a community property state, review the applicable laws and identify what restrictions apply to executing judgments against and pledging of community assets. Ten states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—use some form of the community property system to determine the interest of a husband and wife in property acquired during marriage. Under the community property system, the general rule is that all property acquired during the marriage is community property, owned one-half by each spouse. Property received by inheritance or gift and property owned before marriage is separate property. Obtain signatures on guaranties and collateral documents as dictated by the laws in your state. Consult with your legal counsel. A married woman should sign using her own name. CRC US Body of Knowledge Example: “Jane T. Brown” not “Mrs. John Brown.” DIMENSION 6 - 65 Consider obtaining a legal opinion on the adequacy of the documents delivered to you. Identify any legal issues, as opposed to business issues, and use legal counsel to resolve them. You should not attempt to resolve legal issues on your own even if you have a law degree. Your primary focus is customer service. In non-community property states, the Equal Credit Opportunity Act (ECOA) prohibits requests for a guarantee from a spouse. A lender may request “more creditworthy co-guarantors” and may accept spouses’ guarantees if the guarantors volunteer them. Federal Reserve Board’s Regulation O prohibits making loans to insiders or their related interests unless the loans are made on substantially the same terms as those prevailing at the time for comparable transactions with other persons. The loans also must not involve more than normal risk of nonpayment. There are also individual and aggregate lending limits and periodic reporting requirements. LIMITED LIABILITY LIMITED PARTNERSHIP A limited liability limited partnership is a limited partnership that has qualified as a limited liability limited partnership by complying with applicable state registration laws. The limited partners in a limited liability limited partnership are not liable for the debts of the partnership unless they have guaranteed the debts. The general partners in a limited liability limited partnership are not liable for the debts of the partnership unless the debts existed prior to the election to become a limited liability limited partnership or they have guaranteed the debts. This means they would be liable for any unpaid term debt or revolving credit debt that existed at the time the registration was completed. They would not be liable for any new debt that was not paid, including a renewal of an existing revolving line of credit. They are permitted to participate in management of the business. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. COMMENTS DIMENSION 6 - 66 NOTES: IDENTIFICATION NEEDED Limited partnership agreement. A limited liability limited partnership must have a written agreement. Obtain the agreement from the partnership. Certificate of Limited Partnership. Obtain the certificate from your customer or from the appropriate agency. Proof of registration for limited liability limited partnership status. Obtain the proof of registration from your customer or from the appropriate agency in your state. AUTHORIZATION You need to obtain a partnership resolution to borrow, guaranty, or grant collateral interests, whichever is applicable. It is good practice to do this even if the agreement states who can borrow, give guarantees, or grant collateral interests in assets on behalf of the partnership. SIGNATORY REQUIREMENT The legal names of all designated partners or one or more of the general partners as designated in the partnership agreement are required. Each signature appears after the word “By” and above the typed or printed name followed by a comma and the words “General Partner.” Example: XYZ, L.L.L.P. (or Limited Liability Limited Partnership) By CRC US Body of Knowledge John R. Brown, General Partner By Mary P. Smith, General Partner DIMENSION 6 - 67 A married woman should sign using her own name. Example: “Jane T. Brown” not “Mrs. John Brown.” COMMENTS Consider obtaining a legal opinion on the adequacy of the documents delivered to you. Identify any legal issues, as opposed to business issues, and use legal counsel to resolve them. You should not attempt to resolve legal issues on your own even if you have a law degree. Your primary focus is customer service. In non-community property states, the Equal Credit Opportunity Act (ECOA) prohibits requests for a guarantee from a spouse. A lender may request “more creditworthy co-guarantors” and may accept spouses’ guarantees if the guarantors volunteer them. Federal Reserve Board’s Regulation O prohibits making loans to insiders or their related interests unless the loans are made on substantially the same terms as those prevailing at the time for comparable transactions with other persons. The loans also must not involve more than normal risk of nonpayment. There are also individual and aggregate lending limits and periodic reporting requirements. JOINT VENTURE A joint venture is a one-time partnership for a specific purpose. It may be among individuals, partnerships, corporations, trusts, or limited liability companies. The participants in a joint venture are probably individually liable for the debts of the joint venture. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. If your state is a community property state, review the applicable laws and identify what restrictions apply to executing judgments against and pledging of community assets. Ten states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—use some form of the community property system to determine the interest of a husband and wife in property acquired during marriage. Under the community property system, the general rule is that all property acquired during the marriage is community property, owned one-half by each spouse. Property received by inheritance or gift and property owned before marriage is separate property. Obtain signatures on guaranties and collateral documents as dictated by the laws in your state. Consult with your legal counsel. DIMENSION 6 - 68 NOTES: IDENTIFICATION NEEDED Joint venture agreement. A joint venture must have a written agreement. Obtain the agreement from the joint venture. AUTHORIZATION You need to obtain a joint venture borrowing resolution to borrow, guaranty, or grant collateral interests, whichever is applicable. It is good practice to do this even if the agreement states who can borrow, give guarantees, or grant collateral interests in assets on behalf of the joint venture. For each joint venturer that is an entity and not an individual, you must also obtain proof that the persons signing for each entity are authorized to do so. You should obtain authorization appropriate to the type of joint venturer entity involved. SIGNATORY REQUIREMENT The legal name of each joint venturer signing the document is required. The name should be preceded by the word “By” and should be above the signature line or lines for persons signing on behalf of the joint venturer. The legal names of all designated signers for the participants in the joint venture are required. Each signature appears after the word “By” and above the typed or printed name followed by a comma and the title of the person signing. Example: XYZ, a Joint Venture By: Brown and Smith, L.P., a joint venturer By: CRC US Body of Knowledge John R. Brown, General Partner By: Mary P. Smith, General Partner By: B & S., Inc., a joint venturer By: ______________________________ Mary P. Smith, President DIMENSION 6 - 69 A married woman should sign using her own name. Example: “Jane T. Brown” not “Mrs. John Brown.” COMMENTS Consider obtaining a legal opinion on the adequacy of the documents delivered to you. Identify any legal issues, as opposed to business issues, and use legal counsel to resolve them. You should not attempt to resolve legal issues on your own even if you have a law degree. Your primary focus is customer service. In non-community property states, the Equal Credit Opportunity Act (ECOA) prohibits requests for a guarantee from a spouse. A lender may request “more creditworthy co-guarantors” and may accept spouses’ guarantees if the guarantors volunteer them. Federal Reserve Board’s Regulation O prohibits making loans to insiders or their related interests unless the loans are made on substantially the same terms as those prevailing at the time for comparable transactions with other persons. The loans also must not involve more than normal risk of nonpayment. There are also individual and aggregate lending limits and periodic reporting requirements. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. If your state is a community property state, review the applicable laws and identify what restrictions apply to executing judgments against and pledging of community assets. Ten states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—use some form of the community property system to determine the interest of a husband and wife in property acquired during marriage. Under the community property system, the general rule is that all property acquired during the marriage is community property, owned one-half by each spouse. Property received by inheritance or gift and owned before marriage is separate property. Obtain signatures on guaranties and collateral documents as dictated by the laws in your state. Consult with your legal counsel. DIMENSION 6 - 70 NOTES: CORPORATION A corporation is an artificial entity created by law. It consists of: Shareholders who own the corporation, elect directors, and vote on major corporate acts. Board of directors who manage the corporation and elect officers. State law sets the minimum number of directors a corporation must have. In many states, only one is required. Officers who operate the corporation on a day-to-day basis. They are removable at the will of the board of directors. The corporation’s bylaws should be reviewed to determine the number of officers, their titles, and limitations on their powers. Corporations are sometimes designated “C” corporations and sometimes “S” corporations. Neither designation changes the structure of the corporation. Both designations relate to how income of the corporation is treated for tax purposes. A corporation exists independently and apart from the people who own it. Its shareholders are liable only to the extent of any unpaid purchase price for their investment in the corporation. The corporation is responsible for its own debts. The shareholders, officers and directors are not personally liable for unpaid debts of the corporation unless they have guaranteed the debts. CRC US Body of Knowledge IDENTIFICATION NEEDED Articles of Incorporation. In order to establish a corporation, its organizers must file articles of incorporation with an appropriate state agency. The articles prove the existence of the corporation. They include the name of the corporation, how long it will exist, its business purpose, the names of its organizers and original directors and other information required by the law of the state in which it is organized. You should obtain a filed copy either from the customer or from the appropriate state agency. Bylaws and any amendments. Each corporation also establishes bylaws. The corporation’s bylaws provide the rules under which the company will function. The bylaws establish the number of directors; number, title and duties of officers; frequency and timing of directors’ meetings; and other matters necessary to the operations of the business. You should examine the bylaws to determine whether they place any restrictions on actions of the directors. In smaller corporations, shareholders sometimes reserve powers, such as the obtaining of major financing or encumbering of significant corporate assets, to themselves. You should obtain a copy from the customer. DIMENSION 6 - 71 AUTHORIZATION You must obtain a copy of the board of directors’ resolution certified by the corporate secretary. This is the document evidencing the action by which the directors of the corporation granted authority to officers to make agreements and sign documents on behalf of the corporation. The resolution indicates who can borrow, give guarantees, or grant collateral interests in corporate assets on behalf of the corporation. You must obtain an Incumbency Certificate signed by the corporate secretary when there is a change in officers after a resolution has been delivered to you. If the secretary is authorized to borrow on his or her signature alone, the certificate should also be signed by an officer other than the secretary (unless your state permits one-person corporations and this is one such corporation). SIGNATORY REQUIREMENT The corporate name, as it appears on the Articles of Incorporation or the Certificate of Good Standing, may be typed above the signature line. Each signature appears after the word “By” and above the typed or printed name of the individual authorized to sign for the borrower followed by a comma and the individual’s corporate title. Example: ABC, Incorporated By: ______________________________ John R. Brown, Treasurer NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. Corporate Certificate of Good Standing from the state. A certificate of good standing is issued by the appropriate state agency if the corporation is in current compliance with all reporting and fee requirements set by the state. Obtain periodically to ensure compliance. At a minimum, obtain a certificate each time a new or renewed loan is documented or every two years. DIMENSION 6 - 72 NOTES: COMMENTS Consider obtaining a legal opinion on the adequacy of the documents delivered to you. Identify any legal issues, as opposed to business issues, and use legal counsel to resolve them. You should not attempt to resolve legal issues on your own even if you have a law degree. Your primary focus is customer service. In non-community property states, the Equal Credit Opportunity Act (ECOA) prohibits requests for a guarantee from a spouse. A lender may request “more creditworthy co-guarantors” and may accept spouses’ guarantees if the guarantors volunteer them. It is proper to request guarantees only from those categories (stockholders, officers, directors) pursuant to a credit policy using those (non-discriminatory) categories. Obtain a spouse’s signature on a guarantee in community property states. If your state is a community property state, review the applicable laws and identify what restrictions apply to executing judgments against and pledging of community assets. Ten states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—use some form of the community property system to determine the interest of a husband and wife in property acquired during marriage. Under the community property system, the general rule is that all property acquired during the marriage is community property, owned one-half by each spouse. Property received by inheritance or gift and property owned before marriage is separate property. Obtain signatures on guaranties and collateral documents as dictated by the laws in your state. Consult with your legal counsel. CRC US Body of Knowledge Federal Reserve Board’s Regulation O prohibits making loans to insiders or their related interests unless the loans are made on substantially the same terms as those prevailing at the time for comparable transactions with other persons. The loans also must not involve more than normal risk of nonpayment. There are also individual and aggregate lending limits and periodic reporting requirements. A corporation may authorize its officers or agents to appoint certain individuals to sign checks, drafts, or other orders for payment, transfer, or withdrawal of funds or other property on deposit with your institution. You should obtain the corporate resolution authorizing such appointments. DIMENSION 6 - 73 A limited liability company is an artificial entity created by law. It consists of: Members, who own the limited liability company and who may or may not select a manager. The manager, who may or may not be a member of the limited liability company, operates the company on a day-to-day basis and is removable at the will of the members. The company’s operating agreement should be reviewed to determine the powers of the manager. Limited liability companies are governed by statutes that differ from state to state and, therefore, do not all have the same characteristics. A limited liability company exists independently and apart from the people who own it. Its members are liable only to the extent of any unpaid purchase price for their investment in the limited liability company. The limited liability company is responsible for its own debts. The members are not individually liable for the unpaid debts of the limited liability company unless they have guaranteed the debts. IDENTIFICATION NEEDED Articles of Organization. In order to establish a limited liability company, its organizers must file articles of organization with an appropriate state agency. The articles include the name of the limited liability company, how long it will exist, its business purpose the names of its members and other such information required by the law of the state in which it is organized. You should obtain a filed copy either from the customer or from the appropriate state agency. Operating agreement. Each limited liability company may also establish an operating agreement. The operating agreement provides the rules under which the liability will function and designates a managing member or members. You should obtain a copy from the customer. Limited liability company Certificate of Good Standing. A Certificate of Good Standing is issued by the appropriate state agency if the limited liability company is in current compliance with all reporting and fee requirements set by the state. Obtain periodically to ensure compliance. At a minimum, obtain a certificate each time a new or renewed loan is documented or every two years. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. LIMITED LIABILITY COMPANY