It is incredible to me how many LLCs I have worked with that do not have operating agreements and, upon discussing the matter, don’t think they need one. In today’s world of small business startups, not having a simple operating agreement in place is inexcusable. Failure to set your company up properly – or fix it before a problem manifests – could result in having to dissolve your company to get rid of a no-good partner (or a member not upholding its obligations).
Arizona’s limited liability act takes a very hands-off approach to ordering relationships among LLC members. What seems like a nod to the right to contract in effect costs everyone a lot of money and often ends in dissolution of the company with both sides feeling unfairly treated. Wouldn’t it be better to be able to just expel that member who keeps messing up your company? Then you need a basic operating agreement! I’m here for you.
For the average small business, corporate documents are intimidating to think about and the options suck. On the one hand, you can go to a lawyer and get a complex document that neither you nor your partners will ever read or understand and you’ll pay the business’ first year of revenue in fees to get it. On the other hand, you can try to copy someone else’s contract or cobble one together by a bunch of different samples you found online that “sounded official”. Faced with those options, it’s understandable that most startups forgo the “formality” of an operating agreement. After all, it’s not legally required and you trust your partners or you wouldn’t have gone into business with them, right?
But there’s no reason to be intimidated! An operating agreement is a straight forward contract between partners setting out the rights and duties among them. This helps keep the partners from ruining each other’s lives if relationships go south.
A lot of people don’t know this – unless provided for in an operating agreement, Arizona law does not recognize the right to expel a member without completely dissolving that LLC. Unless the member agrees to leave, getting rid of a member destroys the company. #businessdivorce #lawyers #noonewins #youregoingtobeupsetwiththeoutcome
Nearly no company lasts forever and the ones that do likely have operating agreements. If you have a partner, of whatever percentage, it is inexcusable not to have an operating agreement for your company. If you are the sole member of your LLC, getting a simple operating agreement in place now can only help you as you hopefully expand. A simple operating agreement can be amended more cheaply than if you wait until you are taking on a partner and now want to create a new operating agreement.
Frame Law offers legal and consulting services for startups and growing businesses. For the fledging startup or basic LLC, we offer basic operating agreements, on a flat-fee basis, that are understandable and easily enforceable allowing you to remove a problem member under certain circumstances. For the more sophisticated enterprises, we are here to help you progress to the next step of your company’s evolution.