Are you starting a new LLC with more than one member in California?  Many new business start-ups are attempting to download corporate documents from legal forms websites for a few dollars and attempting to modify the forms themselves.  This is a dangerous practice which will result in substantial costs and litigation down the road and may actually threaten the life of the company and the individual credit of every “member” or owner.  There are many aspects of owning a business which simply cannot be addressed in downloaded forms from a legal forms website.

The Watkins Firm has more than 40 years of experience and has helped to form thousands and thousands of new LLCs and business across the State of California.  We understand money is tight during a start-up phase and starting a new LLC with more than one member in California may seem like an easy thing to do.  While the process may start with a “boilerplate” (to reduce the cost of creating documents from scratch) our internal LLC boilerplate has more than 200 alternative or optional clauses.  Each has a specific legal purpose to protect the business itself and those who own and operate it.  Our attorneys sit down with the new ownership group and discuss each option and why it is to be included in the operating agreement.  Many LLC download forms do not even include an operating agreement.  This is a crucial document and the guidance and advice of experienced business attorneys can make a substantial difference in your company’s present and future prosperity.

These documents address many important issues such as voting rights, the addition of new or additional investment down the road, distribution of profit, and what is to happen to an owner’s interest in the LLC in the case of divorce, incapacitation or death.  For example, what if the one of the original LLC members (owners) becomes incapacitated due to an accident?  The spouse of one of your partners or their legal advocate could assume a role in your company if the operating agreement is not properly structured.  In another example, the actions of a single member can jeopardize the “corporate veil” which legally separates the debts of the business from the personal liability of its owners.

Pro-Tip: “Well, when we bring in an LLC, we’ll charge $1,500. You can get it done online for $500, maybe less. All you’re getting is access to someone else’s form file. But what we do is we create that relationship with you and we go through and tell you why we’re doing this and how it could impact you and why we’re filling this form out and what your options are and all those things that don’t take very much time, but it puts your mind in the right frame to know why I have this company and what each document does and also what elections to make.

And the same is true for your tax ID number or your, if you’re a doctor, a tax ID number is, is your same number you use to go contract with providers insurance to get you paid and all these other little things. You’ve got a relationship with a lawyer who’s probably represented dozens or hundreds of companies like yours. And you can ask basic questions about vendors, about contracting, about how to sign documents, how to sign your name, why you need (or don’t need) every clause or article in the operating agreement. We give you a menu, take this, I wouldn’t do that for your kind of company. We go through them all, tell you what they mean and then three years later you got somebody investing with you and they say, oh, I’m going to do that. And you can say, no, no, no, we have an established operating agreement, and its already written down and it says you can’t do that with my company.

If you have a company, and let’s say there’s three or five people that are members in this LLC, life happens, unfortunately, people die, they become incapacitated, they get divorced, they file personal bankruptcy. So why is it important to address what happens in those events upfront in an operating agreement in this case?

The simple reason is it doesn’t cost that much money to do it right up front, and we already have them on file. And not only do we automatically do it for you, we go through it and we go through it with the areas that are important for you to think about and to know and make choices with an explanation. And so when this happens, which you never think it could happen, you’ll remember that, oh yeah, we do have a clause for what happens if Uncle Joe can’t participate anymore.

And it’s in there and it’s a long document, but it’s in there for you. It’s a framework and it gives you guidance on what steps you should take? How are we going to value that person’s interest? Who gets the first shot at buying them out if something happens? A lot of what ifs. And you can’t account for every possible what if on the planet, but there are 95%, 99% of the what ifs you may come across in your life that can be covered by our customized operating agreement.” – Dan Watkins, Founding Partner

If you are starting a new LLC with more than one member in California we invite you to review our podcast Episode 34 – Business Formation as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.