We talked before about the fact that you want a well written LLC agreement, even if you have a single owner company. You want to make sure your LLC agreement has certain key things in it. You want to make sure that it’s protecting you.
What have we seen? We’ve seen cases where people have fought over the ownership of the LLC. We’ve seen times where liability has not been kept, and we’ve seen people build LLC agreements that don’t give them the flexibility they need to run the business. There’s a couple of key things that you’re going to want to make sure are in your LLC agreement. An experienced attorney can help you make sure you have these correct provisions in your agreement.
#1 You want to make sure the ownership is clear. Even if you’re a single owner company, you would like to have a document that shows you’re a single owner, that you’ve placed in your file for evidentiary reasons. We’ve seen disputes where companies have not had an LLC agreement, and then later one person argues that they are indeed the owner of a company, and the other doesn’t have any materials to memorialize the fact that they are indeed the owner. In a case like that you want to make sure that you have that document in place. While it won’t be dispositive in the event of litigation — it typically won’t end the litigation — it will certainly be a good factor to show who is the owner of the company.
#2 You also want to make sure you have correct liability eliminating language. We’ve seen LLC agreements with unfortunate language in it that have increased owner liability, rather than decreased it. While it’s beyond the scope of this blog, there’s certain language you can put in the LLC agreement to minimize your risk of having liability from third parties on issues. You want to make sure your LLC agreement limits your administrative burdens. A lot of times people copy and paste, and use LLC agreements that require a lot of record keeping, meetings, and other issues. One of the reasons people love LLC’s is that they require less work, they’re simpler to administer, and they’re straight forward. You want to make sure that your LLC agreements are simple, and easy to run, and doesn’t put you in a situation where people can later say, “You didn’t follow your own formalities,” and therefore have liability risks.
These are very simple things, but they can be easily built into your LLC agreement and add lots of protection.
What has been your experience with LLC agreements? Did you write an LLC agreement when you setup your company? What are you thinking about when you’re setting up your LLC agreement? Let us know in the comments below.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
About the Author
Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment (www.rshawnmcbridelive.com) , gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can reach R. Shawn McBride at firstname.lastname@example.org or (214) 418-0258.
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