My friend and I have known each other for years, and we have decided to start a company together. We are certain that we will be able to come to an agreement should a disagreement arise. Do we really need an operating agreement?
Having started, operated and, assisted in the startup and operation of multiple businesses, I can say without equivocation that not having an operating agreement is a recipe for disaster. We never enter into any relationship, business or otherwise, expecting for things to turn sour. Yet, numerous marriages end in divorce and numerous businesses go through “business divorce.”
So, please do not leave your expectations to chance and/or to the presumed goodwill of someone who may not be so friendly – can you imagine trusting a spouse who feels scorned to simply “do the right thing” by you? I anticipate most people would say no. It is imperative to plan ahead for the worst case and a well-crafted operating agreement is the tool you need in order to do just that.
The process of designing an operating agreement is a valuable communication tool.
A well thought out, designed, and drafted operating agreement heads off such issues at the pass. First, the process employed to draft a quality operating agreement institute one of the most important criteria for any successful relationship – communication. Proactive communication that sets expectations is second to none in its impact on successful long-term company function.
Here are a few of the things all business owners should consider when entering into a partnership:
- →What happens is a member dies, wants out, wants to sell, or gets divorced?
- →What happens if there is a deadlock for a critical decision that requires higher level consent?
- →What happens if members do not contribute proportionately to the company’s capital needs?
- →Who can make what particular decisions on a day-to-day basis without the approval of other members?
- →What decisions require unanimous consent?
- →Who decides when to admit a new member and what authority they have?
- →How do you limit the personal liability of the individual members, and what behaviors should not be shielded – if any?
The aforementioned list of questions is far from exhaustive, but it does give you as the reader a good idea of some of the questions that should be asked and answered even before the company is officially conceived.
Stout Law can help with your operating agreement.
Stout Law incorporates this knowledge by engaging our clients in a thorough company formation process that includes as many sessions as are required to answer the above, and many additional, questions completely. And, we do this all for a reasonable flat fee.
Please take our advice and do not allow your hope for the best to equal only planning for the best. Let us help you to plan for the worst even as you begin with hopeful anticipation toward a wonderful long-term partnership. Moreover, let us help you solidify your relationship by incorporating positive, proactive communication that can continue as you prosper together.
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