Your journey to establish your business is progressing. You have chosen a name and the products or services you will offer. Perhaps you have decided to operate as a limited liability company (LLC), one of the most popular choices of business structure in America.
One of the most important aspects of any LLC is a contract that defines how owners will manage it. At Sparks Law, our experienced attorneys are skilled at drafting and reviewing these documents. Discuss your specific needs and goals with a Johns Creek operating agreements lawyer today.
Limited liability companies are popular because they allow members to be flexible when deciding how the company is managed and how it will be taxed. Unlike in sole proprietorships and partnerships, LLC members do not risk their personal assets if the company is sued.
An LLC is a pass-through tax entity, which means company profits are passed to members who declare their shares as personal income. However, members can also elect for the LLC to be taxed like a corporation. High flexibility allows members to choose to be taxed like C or S corporations, both of which have certain advantages. Because the structure of an LLC is so flexible, a local attorney can help tailor an operating agreement to the owners’ needs.
An operating agreement is a legal document binding the owners who sign it to the terms memorialized in it. Operating agreements are optional but highly recommended for LLCs with more than one member. Some crucial elements of the agreement include:
The operating agreement also governs members’ duties, how they will manage the company, distribution of profits, how new members are admitted and how old members depart, how non-performing members are terminated, and the preferred tax structure. Essentially, the operating agreement is the company’s roadmap when deciding how to grow the company or resolve internal disputes. Johns Creek business owners should work with a seasoned lawyer for an operating agreement that captures their vision for the company.
One component of an operating agreement that can cause problems is determining the percentage interest of members. It might seem easy to allocate ownership equally, but members’ contributions are often not equal. Capital contributions under Georgia law can be money, property such as land, or the provision of services.
Adding members can be tricky when founding members contribute equal capital which is used to buy an asset that appreciates. Should a new member contribute the same amount of money to gain an equal share of an appreciated asset that founding members had to sit on while it appreciated?
For instance, Member A and Member B contribute $50,000 each, which they use to purchase real property in Johns Creek. No profits or expenses are generated while the property sits idle, but the $100,000 property over time appreciates to $5 million. If Member C becomes the third owner of the LLC, should the contribution be $50,000 for a one-third share, which would be one-third of $5 million? This aspect of membership needs to be discussed carefully with a Johns Creek attorney when drafting an operating agreement.
If you have elected to charter a limited liability company, you have made an important first step in getting your business off the ground. Now, your priority should be to contact a dedicated attorney at Sparks Law for help drafting the necessary documents.
A Johns Creek operating agreements lawyer could discuss your needs and tailor a contract to your situation. Give us a call today to get started.