Business and Contract Attorneys Based in San Diego
One of the most important components of the corporate documents of a Limited Liability Corporation or LLC is the “operating agreement.” The operating agreement is a contract between the owner members of an LLC, and establishes many important agreements and procedures that govern the life of the company. The operating agreement for an LLC establishes the roles and responsibilities of each party, as well as the voting share or control each member shall hold.
The operating agreement should clearly establish the process for defining “profit” and how profits are to be distributed between the members of the LLC. The operating agreement is an important component of the “corporate veil” – the corporate protections that separate the member owners as individuals from the LLC as an entity from a liability perspective.
The operating agreement should provide protections against commingling of funds or assets, while anticipating the types of events that could challenge the survival of the business. It is important to discuss these situations up front, at the time the LLC is being established, so that clear agreements and guidance can be established while all the parties are working together and excited about the new venture. It is much more challenging and expensive to resolve disputes between member owners once they arise, and an effective operating agreement should anticipate as many of those potential challenges as possible and address how they will be handled.
How Will Your LLC Survive Major Life Events in the Lives of Your Owner Members?
What is a business succession plan, and when should it be developed? What happens if one of the owner members dies or becomes incapacitated? What happens to a member’s ownership interest in the event of a divorce or personal bankruptcy? The operating agreement should identify several specific scenarios and provide a clear process for valuation of a member’s ownership interest and how the company will handle these types of challenges. Will the ownership interest be purchased by the surviving members? What if there isn’t enough cash on hand to operate the business and pay the family of the deceased partner?
How will new investors and partners be brought into the LLC and how will voting rights be affected when this occurs? There are dozens of critical questions to consider, and the experienced business attorneys at Allen Barron will guide you through each issue and provide recommendations and options that become integrated into the final document.
The Operating Agreement for an LLC Should Never Be Downloaded From Website or Copied and Modified
We understand that money is often tight at the beginning of your new LLC, and you want to get things accomplished as inexpensively as possible. However, the structure and formation of your company is not an area to “cut corners.” There are very recent changes in California business laws which give preference and additional power to minority interests in a dispute, and this may not be in the best interest of your company. You are going to pour your own money, time and hard work into this new venture. Disputes will arise; it’s not a question of “if,” it’s a question of “when.” Preparing and executing a strong operating agreement is one of the best “insurance policies” an LLC can put in place. It protects your new company, and ensures that operations continue smoothly at every stage of your new company’s life.
Allen Barron Provides A Strong Combination of Services for New Business Start-Up
The operating agreement for an LLC is one of the many components of creating your new entity and bringing your new company to life. The business attorneys at Allen Barron provide a valuable and cost-effective package of services to manage all aspects of forming your new company including the creation and execution of all corporate documents. We ensure that you are properly registered, and meet all associated regulatory and business licensing requirements.
We provide valuable counsel and coaching that helps you to accomplish the formation of your new company quickly and efficiently while ensuring that it is properly structured and designed to handle each of the challenges and opportunities presented in the coming months and years. If you are forming a new LLC in the San Diego area, we invite you to contact us or call for a free and substantive consultation at 866-631-3470.
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