Articles of Incorporation or Organization Only Part of the Story

Now for the rest of the story . . .

Imagine a client that becomes embroiled in a disagreement with a 50/50 business partner. The two formed a LLC through a lawyer who was unfortunately not a business lawyer. The lawyer set up a limited liability company and drafted articles of organization. The problem – no operating agreement or initial meeting minutes.

Unfortunately this happens all too often. Without an operating agreement it is very tough to settle potential disagreements. How do you value the company? Who has authority or management rights? How are disputes settled? All of these items could have been set forth in an operating agreement. Instead, the parties may be staring a judicial dissolution in the face.

When do you need a shareholder agreement (Corp) or an operating agreement (LLC)? It is important to have one even if you are the sole shareholder or member. It helps establish corporate formalities to insulate you from personal liability. However, it is absolutely imperative to have such an agreement if you have more than one shareholder or member. That is the case even if the shareholders or members are family or best friends. Having a well-written shareholder or operating agreement can help prevent significant problems down the road.

Click here to learn about forming a corporation or limited liability company.