What is the importance of your LLC operating agreement and why shouldn’t your new LLC use a downloaded form? The LLC operating agreement establishes the foundation for your LLC and will guide it through all phases of business. It will also prevent litigation and provide a smooth process for handling the unexpected challenges and surprises that come up for the business itself, as well as in the individual lives of the members who own the LLC. The failure to carefully craft a strong LLC operating agreement in the beginning is one of the greatest risks to the success and survival of your new company.
Why? The operating agreement should clearly establish the role of each member of your new LLC, and the specific responsibilities they will carry. One of the most common disputes that arises between the owners of an LLC is the feeling that one party is doing a lot more of the actual work and bringing in a lot more of the income. A well crafted operating agreement prevents this situation from arising, and creates clear incentives and rewards for unbalanced work loads and earning situations.
Another common issue is the addition of needed capital or bringing on a new investor. How will this be accomplished? What ownership interest will the new party take in the LLC, and how will this ownership interest be valued? What voting rights are associated with each ownership interest, and how will decisions be made regarding the direction of the company?
Many entrepreneurs and new business owners do not anticipate the natural events that arise in the personal life of a business owner such as a divorce, personal bankruptcy or worse, incapacity or death. How will that member’s ownership interest be valued? How will the company ensure that ownership (and voting control) do not pass outside of the existing ownership to a spouse, former spouse or the children of an existing member?
These are some examples of the importance of your LLC operating agreement and why you should contact the attorneys at the Watkins Firm to help craft your new LLC’s operating agreement. Learn how to protect your own interests and prevent litigation while openly discussing many common situations at a time when everyone is of one mind and working cooperatively together in the spirit of the new company. We invite you to contact us for a free consultation at 858-535-1511.