FAQs

What is an Operating Agreement?

Novices to LLCs tend to think that this is the document governing the actual operations of the company. Not so. The operating agreement, also sometimes known as the LLC Agreement (or some variation), is the governing document for the LLC itself. It may be very short, defining merely who the members are and what their respective ownership percentages are. Added to that, there may be restrictions on the transfer of the ownership interest, as well as guidelines for meetings, consent rights, call rights, and so on. These are contracts that can become quite complex.

August 10th, 2015|0 Comments

Do I need an operating agreement for my LLC?

Need? No. And if I were a litigation attorney who made money off of people’s mistakes, I’d say don’t have one and let the chips fall where they may -- better yet, let state law govern your rights and duties. But I’m in the business of preventative law. So, yes, you should have an operating agreement. Just by way of example, without one, and your partner dies, you’ll become partner’s with your dead partner’s surviving spouse -- think about that one for a minute. No way out of that without a written operating agreement providing for a buy-out.

August 10th, 2015|0 Comments

Does my operating agreement, in California, need to be notarized? Witnessed? Initialed on each page?

No, no, and no. In California, all that’s required for a contract (which is what an operating agreement is) to be effective, other than for residential real estate contracts, is a signature. And if the contract provides for an alternate method of signature, like exchanging documents in PDF format over email so that the signatures [...]

February 19th, 2020|0 Comments

What is a Shareholders Agreement?

A Shareholders Agreement, if written correctly, will a) limit each shareholder’s ability to transfer his/her/their/its shares in a corporation, b) provide for certain voting rights or limitations on voting rights, and c) give the corporation and each shareholder the option to purchase the shares of a deceased or withdrawing shareholder. Its purpose is to minimize [...]

February 19th, 2020|0 Comments

Do I need a Shareholders Agreement for my Corporation?

Well, without it, you could easily be engaged in litigation down the road. By way of example, without an agreement in place, the shares of a deceased shareholder will vest in that shareholder’s heirs, who will then be able to review the corporation’s books and vote. If that person doesn’t understand what’s best for the [...]

February 19th, 2020|0 Comments

What is a “Buy-Sell” Agreement?

Frequently a Buy-Sell Agreement is the name used for a Shareholders Agreement in a corporation. Sometimes, though, a Buy-Sell Agreement only refers to that part of a Shareholders Agreement that provides for the remaining shareholders to purchase a deceased or withdrawing shareholders’ shares. Though a solid first step, ideally your corporation would be protected by [...]

February 19th, 2020|0 Comments

Should my operating agreement or shareholders agreement with my co-owners provide for unanimous voting for any operational issues?

Unanimous voting rights can bog down the governance of any enterprise, especially where there are several owners. Sometimes it’s necessary when, say, you have only two owners and they both want to be sure to be included in every decision. Typically, though, unless required by law, you’ll want to avoid unanimous voting requirements, opting instead [...]

February 14th, 2020|0 Comments

What does “super-majority voting” mean?

Voting rights in your entity are an important element of its governance. Sometimes a minority investor, or group of investors, may want the right to vote (or veto) certain business decisions, even though they don’t have the equity to sway a vote. Nevertheless, you may want to give them certain veto rights as part of [...]

February 14th, 2020|0 Comments

What does “capitalization” mean?

Capitalization can mean a couple of things. At first it usually refers to the contributions of money or property that the owners (shareholders or members) have contributed to the business, their “capital contributions”. Later on, or as a result, or in anticipation of such contributions, it may refer to a capitalization chart or table, which will set out each owner and their percentage interest in the entity.

July 12th, 2015|0 Comments

What are stockholders and shareholders?

Simply put, those are the owners, and they can be in many shapes and sizes. A shareholder can be an individual who owns shares in GM or Microsoft; it can be you, owning 100% of the issued shares in your own corporation. It can be another corporation or venture capital firm owning shares in your start-up. "Stockholder" and "shareholder" typically means the same thing.

July 12th, 2015|0 Comments