There are many online services that promise a cheap solution to filing business formation documents. While the initial price might seem like a deal, it is important to understand the hidden costs of using preprinted business formation documents that are not specific to your business. Here are some of the many reasons why it is important to have a lawyer draft your company’s operating agreement:
In order to maintain the legal protections of a limited liability company or partnership, the business must be operated as a separate legal entity. This means that the company’s funds cannot be commingled with personal funds. There must also be a clear accounting for all business expenses and revenue. A clear operating agreement can help clarify your company’s status as a separate legal entity. This is an important step toward protecting your personal assets from being used to satisfy debts of the business.
One of the most common problems business owners face is disputes among themselves over financial interests and management rights in the business. These disputes can cost both time and money. In addition to the attorney’s fees and court costs, business owners will also face decreased productivity or lost business opportunities. Many of these disputes can be prevented altogether with a detailed operating agreement. Such an agreement should address ownership shares of both debts and assets of the business. A good operating agreement should also address management rights in the business, both for daily business operations and long-term strategic planning. If managers are to be hired, this too should be clearly addressed in the operating agreement.
One of the most costly errors new business owners make is simply not knowing the best way of doing business. Co-owners can spend lots of time and money trying to determine the best method of getting things done. This not only impairs profits, but it can also increase stress and friction among co-owners, which further impairs production and increases the likelihood of ownership disputes. By addressing specific business operations matters in an operating agreement, these costs can be mitigated.
If owners haven’t yet decided how to accomplish something, they can decide on a specific method of resolving disputes or identify a professional who will advise them on the problem (such as an accountant, attorney, or real estate professional). Even if you don’t yet know how you want to solve problems or perform daily operations, you should identify how those issues will be resolved, or who gets to resolve them. This can prevent unnecessary disputes and costs that impair your company’s profits.
Effective operating agreements can reduce ownership disputes, protect your business from liability, and save the time and expense of unnecessary litigation. The experienced Akron business lawyers at Niekamp Weisensell Mutersbaugh & Mastrantonio, LLP have helped many Ohio business owners form and manage their businesses effectively. Contact us to schedule a consultation.
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