If you’re in the process of starting a business, then you already know that there are a lot of things you have to think about. From figuring out the type of entity to use to working harmoniously with your partners and raising funds, it’s easy to want to skip the basics in order to get everything going. However, there is one thing that you should never skip: the Operating Agreement or Shareholder Agreement, depending on your corporate entity type. These agreements are often overlooked because of time (we’ll do it later) and budgetary constraints. However, not having a solid agreement in place may prove to be more time consuming, problematic and quite costly in the future. So, why are they so important? What should they include? Let’s discuss.
Why are they important?
A good operating/shareholder agreement is the cornerstone and road map for every business. It is a comprehensive document that is agreed to by all owners, which clearly lays out everything that is important to the business from its inception to potential end. It details ownership rights, obligations and procedures for decision making in a myriad of instances. An operating/ shareholder agreement is the go to source to address disagreements and ensure the stability and continuity of your company.
What should they include?
A proper operating/shareholder agreement should be quite extensive and detailed. Below is a list of the major areas/concepts that are covered by these agreements:
- ownership, profits, and payment structure for every partner/owner;
- identification of important business decisions and instructions on how they must be made (think voting structure and what actually constitutes an important decision);
- clear definition of the management structure and the individual roles everyone has, as well as what obligations each one requires; and
- a thorough explanation of how to deal with a partner that wants to leave and sell his/her interest or how to deal with an untimely death or incapacity of one of the owners.
Businesses require a lot of documents and contracts in order to function properly. Contact Ser & Associates today to get your business started on the right foot and avoid legal trouble down the road.