Effective January 1, 2014, North Carolina adopted a new statute governing Limited Liability Companies (“LLC”). I will be writing several posts in coming weeks on some of the nuances of this important law.
Today, we will consider a fundamental point which many small and mid-sized businesses fail to consider:
what defines the ownership and management rights of the people (or companies) which own a North Carolina LLC?
An experienced business attorney has the specialized knowledge to help business owners have informed conversations on these very important matters up front. Such candid conversations and a clearly
written agreement, called an Operating Agreement, help ensure LLC members think though these issues carefully and seriously, hopefully avoiding expensive, time consuming lawsuits which result from business owners not being on the same page.
Before the new law was adopted, an Operating Agreement had to be in writing. Now, an Operating Agreement can be verbal or written, and the Articles of Incorporation is treated as part of the Operating
Agreement.
Still, the best practice is to have a written Operating Agreement created after candid discussions among business owners, and revisited as circumstances change.
Consider some key points –
(1) What percentage of the LLC is owned by each owner (“member”)?
(2) Who can vote on what sorts of issues in the management of the LLC?
(3) How can this agreement be changed?
(4) What vote is required to sell the business?
(5) What are the powers and limits of the powers of each member in running the business?
(6) Can any member sell their part of the LLC?
(7) Can any member be required to put more money into the business?
(8) How are profits split?
(9) Are members paid salaries for their work for the business?
(10) How does any member gain access to the financial and other records of the LLC?
(11) What happens if a member of the LLC should die or becomes too sick to work for a long time?
(12) When do the members of the LLC meet to discuss company business?
(13) What protection is given to any member or manager sued for their work for the LLC?
The list goes on from here, but this provides a good starting point for thinking about how the members of a LLC work together to run their company. The Canipe Law Firm, PLLC regularly works with business owners who are ready to have these important conversations.
Today, we will consider a fundamental point which many small and mid-sized businesses fail to consider:
what defines the ownership and management rights of the people (or companies) which own a North Carolina LLC?
An experienced business attorney has the specialized knowledge to help business owners have informed conversations on these very important matters up front. Such candid conversations and a clearly
written agreement, called an Operating Agreement, help ensure LLC members think though these issues carefully and seriously, hopefully avoiding expensive, time consuming lawsuits which result from business owners not being on the same page.
Before the new law was adopted, an Operating Agreement had to be in writing. Now, an Operating Agreement can be verbal or written, and the Articles of Incorporation is treated as part of the Operating
Agreement.
Still, the best practice is to have a written Operating Agreement created after candid discussions among business owners, and revisited as circumstances change.
Consider some key points –
(1) What percentage of the LLC is owned by each owner (“member”)?
(2) Who can vote on what sorts of issues in the management of the LLC?
(3) How can this agreement be changed?
(4) What vote is required to sell the business?
(5) What are the powers and limits of the powers of each member in running the business?
(6) Can any member sell their part of the LLC?
(7) Can any member be required to put more money into the business?
(8) How are profits split?
(9) Are members paid salaries for their work for the business?
(10) How does any member gain access to the financial and other records of the LLC?
(11) What happens if a member of the LLC should die or becomes too sick to work for a long time?
(12) When do the members of the LLC meet to discuss company business?
(13) What protection is given to any member or manager sued for their work for the LLC?
The list goes on from here, but this provides a good starting point for thinking about how the members of a LLC work together to run their company. The Canipe Law Firm, PLLC regularly works with business owners who are ready to have these important conversations.
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