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Attn Business Owners and Lawyers - LLC Operating Agreement
Posted on 2/24/23 at 4:12 pm
Posted on 2/24/23 at 4:12 pm
So a partner and I are starting an LLC. I have gone to a couple of lawyer friends but they practice in other areas so business formation is not something they really handle. They are going to provide some recommendations though.
I know you can start an LLC yourself online and they have some generic operating agreements that I imagine would be okay to start out with. Has anyone used these, like Rocket Lawyer. Also once we get our lawyer lined up I don't think it is too difficult to go in and update the Operating Agreement correct?
Any advice or particular recommendations in terms of the Agreement.
TIA
I know you can start an LLC yourself online and they have some generic operating agreements that I imagine would be okay to start out with. Has anyone used these, like Rocket Lawyer. Also once we get our lawyer lined up I don't think it is too difficult to go in and update the Operating Agreement correct?
Any advice or particular recommendations in terms of the Agreement.
TIA
5
Posted on 2/24/23 at 4:15 pm to GREENHEAD22
You could adopt a new operating agreement any time you want. The only problem I see is you are stuck with the one you have if you never get around to it or if you and your partner can't agree on a new one later. It's typically an internal document though so it's pretty easy to update.
Posted on 2/24/23 at 4:18 pm to GREENHEAD22
quote:= they don't want to give you free legal advice.
I have gone to a couple of lawyer friends but they practice in other areas
Posted on 2/24/23 at 4:22 pm to tgrmeat
My one concern, and I could have this understanding wrong, is that your operating agreement can be used against you in court if not structured correctly. Is that possible?
This post was edited on 2/24/23 at 4:32 pm
Posted on 2/24/23 at 4:30 pm to GREENHEAD22
This isn't legal related, but are you going in as 50/50 partners? You need to consider that LOOONNGG and hard if so. Its not easy to run a business with a partner not to mention a 50/50 one. Do you really need each other? What are your roles? What happens if you disagree?
Posted on 2/24/23 at 4:38 pm to baldona
Yea I am aware of that but yes he is essential.
So this is a side company for now, we will still maintain our normal W2 jobs for now. The company can be ran semi-passively for the time being until/if we expand. He will be more business development and I will be Operations but there will be some crossing of the two.
It is low maintenance/service equipment rental for right now.
So this is a side company for now, we will still maintain our normal W2 jobs for now. The company can be ran semi-passively for the time being until/if we expand. He will be more business development and I will be Operations but there will be some crossing of the two.
It is low maintenance/service equipment rental for right now.
Posted on 2/24/23 at 4:52 pm to GREENHEAD22
A lot of the issues early on is equity and expenses. If you are 50/50 partners you need to each take out the same amount of money and put it in an account together. Tons of issues come up when partners don’t contribute the same and then disagree on reimbursement.
Posted on 2/24/23 at 4:56 pm to baldona
That is the plan, both put up the same money. We will also be using a SBA loan.
Posted on 2/24/23 at 7:35 pm to GREENHEAD22
quote:anyone can sue anyone over anything, especially a breach of contract (operating agreement).
your operating agreement can be used against you in court if not structured correctly. Is that possible?
Posted on 2/24/23 at 8:32 pm to GREENHEAD22
quote:
My one concern, and I could have this understanding wrong, is that your operating agreement can be used against you in court if not structured correctly. Is that possible?
I’m not sure what you mean by if not structured correctly.
The operating agreement is essentially a contract between the two of you. So yes it can always be used in court no matter how it’s structured. That’s the whole point of having it.
Posted on 2/24/23 at 8:38 pm to Weagle25
I didn't explain that correctly. Used in court by an outside entity to get around the limited liability and make us also personally liable.
Posted on 2/24/23 at 9:04 pm to GREENHEAD22
quote:
I didn't explain that correctly. Used in court by an outside entity to get around the limited liability and make us also personally liable.
That’s a question for an atty but I don’t think that would be the case. Piercing the LLC veil would still be tough as the operating agreement is really how the company is supposed to be run and is an agreement between the partners.
A partner can and definitely will sue another partner though for breach of the operating agreement or something to that matter.
Just saying no matter how good of friends or how long you’ve known each other, you’ve got to look at it from a nuclear worst case scenario. How do you protect yourself personally should things get sideways with the partners of the llc.
Lots of things you have to think about. What happens if your partner dies and his family/estate want out or want to sell the company. Do you each have a key man life insurance policy to fund the buyout or how would you do that to keep the family out of your business.
I know it’s a small side gig for now but just think of everything that could go wrong as it as at some point along the way with some other llc out there.
Posted on 2/24/23 at 9:31 pm to Im4datigers
quote:
I would STRONGLY suggest one take 51% and the other 49%. Very, very, very few 50/50 ownerships work out. 25 yr+ banker so I’ve seen it all. Have
I cant imagine being a 49% partner in a company being better than being 50%. You have all the same responsibility but can get overidden on anything. I could see that situation getting just as or even more nasty than a 50/50.
Posted on 2/24/23 at 11:04 pm to GREENHEAD22
If you don’t own 51%, you don’t own anything. If you go 50/50 I would have it clearly written in the contract at what price either of you could demand to be bought out.
Posted on 2/25/23 at 7:34 am to Drizzt
quote:
cant imagine being a 49% partner in a company being better than being 50%. You have all the same responsibility but can get overidden on anything. I could see that situation getting just as or even more nasty than a 50/50.
Usually the only time you will see this is if one partner has the money and the other has the expertise but no money.
Posted on 2/25/23 at 12:52 pm to GREENHEAD22
How will your LLC be taxed for federal income tax purposes? Partnership, C Corp, S corp?
Most generic LLC Operating Agreements are prepared on the assumption that your LLC is being taxed as a partnership, but if you go the S corp route, the ill-fitting operating agreement can cause the S election to be revoked.
Most generic LLC Operating Agreements are prepared on the assumption that your LLC is being taxed as a partnership, but if you go the S corp route, the ill-fitting operating agreement can cause the S election to be revoked.
Posted on 2/25/23 at 2:03 pm to texn
Partnership for now. We have the CPA in place.
This post was edited on 2/25/23 at 2:05 pm
Posted on 2/25/23 at 8:39 pm to GREENHEAD22
Tiebreaker mechanisms, transfer restrictions, and buyout procedures/valuations provisions are some of the most important things to cover in an OA. Once things turn to crap, no one will agree on such things. Get it done while everyone is getting along.
A stalemate of 50/50 is no good, and you might not want to be partners with his widow or kids if he kicks the bucket.
A stalemate of 50/50 is no good, and you might not want to be partners with his widow or kids if he kicks the bucket.
Posted on 2/26/23 at 9:13 am to GREENHEAD22
I’d recommend hiring an attorney to prepare the articles of incorporation/operating agreement.
Many of the operating agreements I’ve seen prepared by these online companies were very poorly done and ended up creating headaches later on for my clients. It should cost less than $1k to have an attorney prepare the operating agreement and to file it with the secretary of state. Spend the money to get it done right from the start.
Many of the operating agreements I’ve seen prepared by these online companies were very poorly done and ended up creating headaches later on for my clients. It should cost less than $1k to have an attorney prepare the operating agreement and to file it with the secretary of state. Spend the money to get it done right from the start.
Posted on 2/26/23 at 10:44 am to Riverside
quote:
It should cost less than $1k to have an attorney prepare the operating agreement and to file it with the secretary of state.
Not sure what state you’re in, but in my experience you don’t file the operating agreement with the state.
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