Most things in life are governed by a set of rules. Whether playing bridge or in a softball league, there are things you can and cannot do. So why would it be any different if you were involved in a business with other partners? Wouldn’t you want a set of defined rules, a playbook which from the very beginning let’s everyone know how to play the game?
Whether your company is a start-up, joint venture, or partnership, you should have an operating agreement, which is an agreement between the members of the LLC that describes and outlines each member’s, rights, duties, obligations, responsibilities, positions and things such as voting rights, selling shares or letting in new members. The operating agreement can be updated and amended at any time, for whatever specific company need that might arise.
Although everyone starts a new business with partners with the best of intentions and trust, inevitably, there is likely going to be a situation that will require decision making by all the partners. What happens when one of your partners dies unexpectedly? What happens to his or her ownership in the company? A well drafted operating agreement will take into consideration things like death happening and have language contained in same so that the surviving parties can take the appropriate action.
Similarly, what if one of your partners is in dire financial straits personally and desires to sell his shares in the company to an outsider to raise cash. Again, a well drafted operating agreement will usually prevent this from occurring by having language in it mandating that the shares have to first be offered to all other shareholders of the company, thus preventing an outsider from becoming an owner of the company.