Operating Agreements are Worth Their Weight in Gold
The truth is that cost of an operating agreement is not a large expense for your business, but well worth the price. Granted, as an attorney who drafts operating agreements, I have an obvious angle for promoting operating agreements. My hope is that by reading this article on the value of an operating agreement you will be sufficiently persuaded as to the need to for an operating agreement. Please take a moment to read this important article.
Operating Agreements Define the Management Structure of a Massachusetts Business
One of the many positive uses of an operating agreement is to set down expressly, in writing, what role you want you management or executive staff to occupy. Clearly limiting in writing roles is one simple way to limit liability for your LLC, as any executive which exceeds this authority places themselves (and ideally not your LLC) in the crosshairs.
Other issues that may be addressed in the operating agreement with respect to management and executive staff is compensation, noncompete issues, how and why an executive may be terminated, etc. Contact our office to learn how easy it is to obtain an operating agreement for your Massachusetts business that takes into consideration your unique circumstances.
The Folly of No Operating Agreement
The fact is that without a valid operating agreement for an LLC, in Massachusetts, your business will operate by the default law which governs LLC’s. While this law is beyond the scope of this present article, it should be clear that you do not want to place the success and operations of your business on the default rules that apply to all LLC’s. Instead, your business is better served by creating a tailored operating agreement unique to the details of your business.
Prepared for Future Growth
It is possible to anticipate and plan for future growth by inviting angel investors to contribute towards the success of your company. One key factor and worry for business owners who have a good idea but lack funds to promote that idea is the concern over what happens when an investor joins the company. How much control do they want? How much control do you want them to have? An operating agreement is the perfect vehicle to address the degree of control that an investor may have in your LLC.
Create a Unique Business Identity
The ability to separate the business owner or owners from the LLC itself is perhaps the most important function of an operating agreement. Many business owners are not aware that, in Massachusetts, a failure to make a bright line between the business owner and the business itself is crucial to limiting liability. Making a clear separation between owner and business is done in an operating agreement by putting in writing the capital contributions made by the owner, the role of the owner in the business, and that indemnify the business owner from certain decisions or exercise of authority.
Absent an operating agreement for you Massachusetts business, the distinction between you as the business owner and the business itself may be unclear which creates a risk of liability for you personally.
Name a Successor
Have you given thought as to how your business would continue to function without you or your management staff present? Do you want to name alternative management, dissolve the company, or take other actions should you become ill or unable to continue performing your duties? If you have partners in the business management or in funding the business, have you considered whether they are allowed to transfer ownership to another? Perhaps the answer to this question is “yes,” but, do you really want the business ownership of a partner to go to that partner’s family? Are this future “heirs” qualified? All of these factors can be addressed in an operating agreement for your Massachusetts LLC. Call us to learn more.
DISCLAIMER:
The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.
