When you are starting a business, you can choose from among several different corporate forms, including a sole proprietorship, a general partnership, a limited partnership, a limited liability company (LLC), or a corporation. Each of these forms has advantages depending on your circumstances and business objectives. If you are starting an LLC, you will need to get a written operating agreement drafted. At Klapper & Fass, our experienced New York corporate law lawyers are also litigators. This gives us helpful insight into the kinds of information and concerns that must be addressed in an operating agreement from the start to minimize problems later.Drafting an Operating Agreement
If you are a member of an LLC, you are required to adopt a written Operating Agreement under Section 417 of the Limited Liability Company law. This is a key document for an LLC that establishes the members' obligations, rights, powers, and duties. It need not be filed with the Department of State. You can enter into the Agreement either before or within 90 days of filing your Articles of Organization. In general, each LLC is different, and although there are some common topics that should be covered, each LLC may take a different approach depending on its own objectives.
Members have a lot of flexibility in drafting these operating agreements. There are only a limited number of rules within the Limited Liability Company Law that cannot be modified through the agreement. Typically, a strong agreement will include rules related to management, voting rights, managers, equity structure, indemnification, limits on liability, restrictions on transfers and buyouts, confidentiality, books and records, dispute resolution, and dissolution.
Management provisions are straightforward. They deal with the kinds of decisions a manager may make for the LLC. There are daily decisions, such as the purchase of office supplies or paying employees, and there may be more substantial decisions, such as securing financing, bringing on a new member, or mergers. By default, an LLC is member-managed, which allows the members each to make daily decisions that bind the company. Usually, the more substantial decisions require the members to formally authorize the decision. When you file your articles of organization with the secretary of state, you will indicate whether the company is member-managed. Different default rules apply in New York to member-managed LLCs.
Like many other provisions of the LLC law, the default rules apply except as provided in an operating agreement. The operating agreement can differently describe how formal authorization is to take place—by written consent, majority member vote, or some other means. While the LLC law includes a description of extraordinary decisions that require formal authority, your operating agreement can list different decisions that you find substantial in connection with your own goals, and this will always require formal authority. You will also need to express how much consent is necessary to obtain formal authority, whether it is a majority or a unanimous vote.
By default, members vote in proportion to their shares of profits. However, your operating agreement can change this default by giving certain groups of members different voting rights that are not dependent on their profit shares or by removing voting rights from certain groups of members.Consult a New York Lawyer for a Corporate Law Matter
At Klapper & Fass, our New York corporate law attorneys can draft a strong operating agreement for your specific needs and litigate any disputes that may arise in connection with it. We maintain offices in White Plains and Manhattan, and we serve the five boroughs of New York City, as well as Nassau, Rockland, Suffolk, and Westchester Counties. We also provide legal representation in other states, such as Texas, Michigan, Florida, Pennsylvania, California, and Illinois. Contact us at 914.287.6466 or via our online form to set up an appointment with a corporate law or business litigation attorney.