Starting a business is an exciting prospect, and you want to ensure you take every necessary step to set the enterprise up for success. If you intend to set up a limited liability company (LLC), the process begins with registering the LLC with the State of North Dakota by filing certain documents with the North Dakota Secretary of State (SOS). The next step in forming an LLC is preparing an operating agreement, which sets outs the rights and obligations of the owners and determines the rules governing the operations of your company. Your operating agreement does not need to be filed with the State, but that does not make it any less critical to the formation of your company.
Common Terms of an Operating Agreement
Your operating agreement should be a roadmap for how owners will work together to run the business. While the specific terms should be tailored to your business, the following are some common issues that your agreement might address:
- Each owner’s interest in the company and general rights
- Profit and loss distributions
- Management roles
- Fiduciary duties of the owners
- How to admit other owners
- How to remove an owner
- Withdrawal from the company and interest transfers
- Dissolution proceedings
- Dispute resolution
There are many benefits to having the right operating agreement in place. First, if a conflict arises between owners, they can simply refer to the operating agreement for guidance on how to resolve the matter. If the terms of the agreement do not solve the issue, owners should proceed with the dispute resolution methods set out in the agreement.
Many operating agreements require owners to engage in alternatives to litigation, such as mediation or arbitration. If you do not have an agreement in place, a disgruntled owner might try to take every issue to court, which can be costly for the company. If a dispute arises, always speak with a lawyer who can represent you and seek a resolution that is favorable for you and your business.
The Problem with DIY Operating Agreements
Many people who are in the process of starting a business consider using online forms to create an operating agreement to save money. It’s critical to understand that an operating agreement should be carefully tailored to meet the specific circumstances of your company. A boilerplate form that you find online will likely not be tailored to your business which can result in significant unintended consequences. Using an online form might save costs in the short-term, but it could also result in significant costs to the company if issues not addressed by the company’s operating agreement arise in the future.
Contact an Experienced Fargo Business Lawyer for More Information
At O’Keeffe O’Brien Lyson Attorneys, we understand how important it for business owners and entrepreneurs to get the legal counsel they need from the start. We provide effective and solution-oriented advice and representation so that our clients can focus on growing their businesses. Contact experienced business attorney Stephen Welle by email, or call O’Keeffe O’Brien Lyson Attorneys at 701-235-8000 or toll-free 877-235-8002.
