Why is it important to pay attention to the operating agreement or shareholders’ agreement during and after the formation of an LLC or other corporate entity? Unfortunately, most new business owners and investors don’t fully understand the value of these corporate documents when forming a new company. The operating agreement, shareholder’s agreement and other important corporate documents including the by-laws contain important clauses that can make or break your new company. Why are these documents so important? Why is it so important to work with experienced San Diego business formation attorneys, even if you’re starting a small business or LLC?
Important Decisions Are Most Easily Managed at Startup
After more than 40 years of experience assisting with the formation of literally thousands and thousands of business entities I can tell you the important decisions relating to these corporate documents are most easily managed at startup. Pay attention to the operating agreement or shareholders’ agreement and the important details and clauses contained within these documents. Crucial decisions must be made regarding the relationship of the owners of the LLC, S-Corporation or C-Corporation, voting rights, the distribution of income and profits and ultimately how day-to-day decisions will be made.
It is important to discuss and implement strategies to manage what will happen if one of the members or shareholders experiences a significant health challenge including incapacitation. What happens if one of the key players passes away? What happens if one of the stakeholders must file for personal bankruptcy or face a divorce?
Most new business owners don’t value the high likelihood that a dispute will develop down the road between members or shareholders, and the strength of the operating agreement or shareholder’s agreement can limit or eliminate this risk and the tens of thousands of dollars that must be spent to resolve any subsequent dispute. How will ownership interests be valued if a member or shareholder must be bought out? Who has first right of refusal? Do you want a complete stranger or the ex-spouse of a member or shareholder suddenly appearing with half of their voting interest? Of course not.
Success Leads to Disputes
After more than 40 years of representing owners, members, shareholders and investors in business disputes, lawsuits and litigation I can tell you this: the more successful you are the more likely a substantial business dispute will occur. Money changes the way people think and behave, and when a lot of money is on the table I’ve seen otherwise good people make some really questionable decisions. I’ve pursued them as a plaintiff and defended them as well.
Pay Attention to the Operating Agreement or Shareholders’ Agreement at Every Step of the Journey
This is why you must pay attention to the operating agreement or shareholders’ agreement for your corporate entity from the moment of formation through the life of your corporation.
After four decades of serving the business and healthcare communities here in San Diego and Southern California I can tell you the time and modest investment you invest in hiring the Watkins Firm to create your new business entity will return to you hundreds of times over, often in a relatively short period of time. The biggest mistake new business owners make is to attempt to download forms from some legal site or modify something they’ve found online.
Legal sites argue the “boilerplate” they provide fits all applications and saves hundreds of dollars. The reality is the Watkins Firm begins with our own proprietary “boilerplate” system for new business formation and simply tailor it to your unique circumstances in a cost-effective manner. There are more than 130 individual decisions which must be made to tailor these documents to you and your company. We guide our clients through each decision and provide insight based upon decades of experience with thousands of clients. We help you to understand the risks associated with each option, and how to tailor these documents to empower your company to come out strong, grow and prosper.
We help you to understand every issue contained within the corporate documents when forming a new company and to make sound decisions that protect your new business now and in the future. The Watkins Firm also helps to regularly update these important documents as your business grows and changes. We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
