Ask a Business Lawyer Blog

Ask a Business Lawyer, Part 6: Operating Agreements, top issues.

 Email Article  

Tweet  

  

 delicious  

  

When establishing a Limited Liability Company (LLC), it is important to obtain an Operating Agreement that is clear, concise and consistent with the goals and expectations of the founders.  It is also important to note that some jurisdictions require an Operating Agreement for an LLC to exist. 

1. DEFINITIONS.  Provide for clear definitions of important terms.
2. ORGANIZATION. Provide description of the organization, including the name, purpose, principal office, resident agent, members, etc.
3. CAPITAL CONTRIBUTIONS.  Describe expectations and requirements for initial and future capital contributions. Also clarify whether there will be interest or a return of such contributions and what type of contributions will be accepted.  Include information on how and where such will be held and terms of loans, if applicable.
4. DISTRIBUTIONS. Clearly describe how and when distributions will be made; how and when compensation payments will be made; how profits and losses will be allocated, etc.
   LIQUIDATION AND DISSOLUTION. What happens in the event of liquidation and dissolution.
5. MANAGEMENT. Provide clear description of what duties, responsibilities and authority will be delegated to Managers. Also includes process of removal of Management, etc.
6. MEMBERS.  Describe duties of Members.  Describe how voting and meetings will take place.
7. PERSONAL SERVICES. What personal services are expected and required?
8. BENEFITS. What benefits will be offered?
9. LIABILITY AND INDEMNIFICATION. Describe the extent of liability and indemnification that will be provided.
10. GRANT OF LICENSE.  Will Members be required to grant licenses or provide assignment of rights, for intellectual property to the LLC?
11. TRANSFERS. How and when will transfers will be permitted?
12. LIFE INSURANCE.  What will be the terms of buyout including any buyouts based upon key man insurance policies?
13. DEATH. What will happen in the event of death, disability, or bankruptcy of a Member?
14. DEADLOCK.  What will happen in the event of Deadlock of Members?
15. FAIR VALUE.  How will Fair Value of Ownership Units be determined

The above is provided for informational purposes only and is not an exclusive list of issues.  However, it provides important issues to think about and to discuss with your business partners and business lawyer.  Consult a competent business lawyer with experience in drafting operating agreements.  Like Joint Venture Agreements, Operating Agreements are a means to avoid disputes and to resolve inevitable disputes quickly.

When you are ready to discuss the legal issues associated with your business, click here to contact Michelle L. Grenier, Esq.

Copyright (c) 2011-2012 Michelle L. Grenier, Esq. All rights reserved.