{"id":13032,"date":"2018-11-02T16:03:27","date_gmt":"2018-11-02T20:03:27","guid":{"rendered":"https:\/\/legalcounselnj.com\/?p=13032"},"modified":"2020-04-22T15:18:30","modified_gmt":"2020-04-22T19:18:30","slug":"llc-operating-agreements","status":"publish","type":"post","link":"https:\/\/legalcounselnj.com\/llc-operating-agreements\/","title":{"rendered":"Limited Liability Companies and Their Operating Agreements"},"content":{"rendered":"

Limited Liability Companies are the most popular business entity used in forming any new business.\u00a0 This is because of its flexibility, tax friendliness, and protection of personal assets from business liabilities. They are easily set up, and many people create them online themselves, use a service or hire an attorney to create them. Regardless of how they are created, the owners should take great care in drafting the company\u2019s Operating Agreement.<\/p>\n

Limited Liability Company Operating Agreement<\/u><\/strong><\/p>\n

\"A<\/a>

A properly drafted operating agreement will help avoid turmoil<\/p><\/div>\n

Every limited liability company in New Jersey has an Operating Agreement. Either the owners have drafted one, or it will be construed that they have adopted the terms of the revised Limited Liability Company statute as one. (Did you ever read a statute that you fully understood? How about one that was essentially written by law professors?) \u00a0The Operating Agreement is important, in that it sets up how the company is to operate, the owner\u2019s duties, obligations and rights.\u00a0It is a legally enforceable and binding document, and, although serious, left to their own devices, new business owners often fail to draft one, or are not advised of the need for one. Still worse, many just print one off a website without fully understanding its impact.<\/p>\n

Get the Operating Agreement Right\u2014At the Beginning<\/u><\/strong><\/p>\n

When a new business starts, all of the partners are positive and enthusiastic.\u00a0 However, once the business starts, it is inevitable that politics, disagreements, and power-plays will occur.\u00a0 It is essential that you get the Operating Agreement right, at the very beginning of your venture, while everyone is amicable. Change will be extremely difficult later on. Each owner should review a draft Operating Agreement carefully, and ask themselves, \u201cHow will I be protected if something goes wrong?\u201d\u00a0 And, I know that when you start a business, there isn\u2019t much money to spend, but, it\u2019s worth the money to have an attorney review the document and have him or her give you the benefit of their experience. The attorney has seen what happens when things go wrong. An attorney can suggest protective clauses that you have never considered given their experience.\u00a0 It shouldn\u2019t cost much, and it will certainly be less expensive than if you just \u201cwinged it\u201d.<\/p>\n

Nightmares<\/u><\/strong><\/p>\n

Many new LLCs have two owners.\u00a0 Their Operating Agreement gives them each a fifty percent interest and equal vote.\u00a0 At the beginning of your business, you may say to yourself, \u201cWell, we get along.\u00a0 I can\u2019t imagine we would disagree\u201d. But if you do, there is no way to break a tie vote: you both have an equal vote.\u00a0\u00a0 How are disputes to be resolved?<\/p>\n

What about profits? Many Operating Agreements say profits are to be distributed in accordance with each owner\u2019s interest in the company.\u00a0Then, all owners have an equal interest.\u00a0Let\u2019s say, each of three owners has a one-third interest.\u00a0\u00a0 Profits would be distributed one-third to each. But, as time goes on, one owner is the only one bringing in the work. That one owner is going to get mad if profits keep getting equally spread to the others.<\/p>\n

You can provide for this in the agreement, now, before it becomes an issue.<\/p>\n

How about a partner who isn\u2019t pulling their weight? How about a partner who wants to sell their ownership interest to a stranger. How about a partner who dies\u2014who gets the ownership interest? All of these questions need to be answered at the very beginning, or it may be litigated later.<\/p>\n

Reality Check<\/u><\/strong><\/p>\n

Once the issues have been provided for in your Operating Agreement, step back and think about the clauses.\u00a0 Are they what you want? Are they workable for you?\u00a0 Recently, one of the owners of an LLC wanted to retire.\u00a0He wanted to give his interest in the company to one of the three remaining owners. However, the Operating Agreement required him to get the approval of all of the other members before making the transfer.\u00a0 Of course, one of the owners disagreed, because he did not want the one owner to have a greater interest in the company than him.\u00a0 It turns out the retiring member wanted just that to happen because he felt abused by the objecting owner. Now, instead of a transfer, the retiring member is considering litigation. It\u2019s not that you have an Operating Agreement that is important.\u00a0 It\u2019s what your Operating Agreement says that is important.<\/p>\n

If you start an LLC, don\u2019t skip the Operating Agreement; don\u2019t just print one off the internet and sign it.\u00a0 Take your time. After all, this is your business we are talking about.\u00a0An attorney experienced in business matters can help you. \u00a0We are waiting to help.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Limited Liability Companies are the most popular business entity used in forming any new business.\u00a0 This is because of its flexibility, tax friendliness, and protection of personal assets from business liabilities. They are easily set up, and many people create them online themselves, use a […]<\/p>\n","protected":false},"author":5,"featured_media":11367,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,3007],"tags":[1876,1875,1874,51,54,56,75,1873,1872,90],"_links":{"self":[{"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/posts\/13032"}],"collection":[{"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/comments?post=13032"}],"version-history":[{"count":0,"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/posts\/13032\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/media\/11367"}],"wp:attachment":[{"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/media?parent=13032"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/categories?post=13032"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalcounselnj.com\/wp-json\/wp\/v2\/tags?post=13032"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}