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Why Do I Need an Attorney to Draft an Operating Agreement?

Operating Agreement

The first rule of any new business is to maximize profits while avoiding any unnecessary expenses.  Unfortunately, legal fees to help properly set up a new business are often some of the first expenses to be cut when forming a business plan.  Why do we need to spend money on an agreement when we can get free forms online?  Besides, we all understand how the business will be run and we will simply divide profits equally among the owners.  What else is there to decide?

If you are like many small businesses today, your business is organized as a limited liability company, also known as an LLC.  The basic operational document of an LLC is the Operating Agreement.  The Operating Agreement sets forth the agreement between the owners/members as to how the company will be managed and profits distributed.  Online forms or impersonal questionnaires cannot substitute for careful, proper planning.  Thoughtful planning to the following issues is imperative if the owners/members want the company to be successful in the long run:

  1. What is the agreement between the owners/members?
  2. What is everyone contributing as initial capital?
  3. Who will control or manage the LLC?
  4. How will business decisions be made?
  5. How will profits or dividends be distributed?
  6. How will the company be taxed?
  7. What if an owner/member desires to get out of the business?
  8. How do company interests pass upon death?
  9. How will new owners/members be granted access to the company?
  10. What happens if owners/members want the company to move in a new direction?
  11. Do you want to be in business with your partner’s spouse if something were to happen to him/her?

Without proper thought and planning any of these issues, along with many others can derail the company and ensure its failure.  On the other hand, with competent legal counsel, a properly drafted Operating Agreement can help you avoid many unseen and unexpected headaches throughout the lifetime of your company.

The good news is, even if you have already started a business and breezed over these issues without really putting the proper thought into them; the Operating Agreement can be amended or completely redone.  If you are in, or are planning to go into, business with other people, make sure you take the time necessary, and seek out good legal counsel to help you think through the possible issues that may come up during the lifetime of your company.  Make sure that you and the other owner/members of your company understand the issues, have discussed them thoroughly and memorialized the resolutions in an Operating Agreement.  You can then spend your time and efforts focusing on your business instead of on the headaches that are sure to come if proper planning is swept aside.

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