llc formation and operation; how to draft the llc operating agreement
TRANSCRIPT
LLC Formation and Operation:How to Build an Unsinkable Company
BRADLEY MILLERMiller Law LLC ∙ @bradleymiller#WatchForIcebergs
ALL businesses can fail.
Part 1: Formation & Operations
- INTERMISSION - Part 2:
Operating Agreements
PREPARING TO LAUNCH
Articles of Organization1. Name of the LLC2. Duration of existence3. Statutory agent4. Optional provisions
WHO IS STEERING THE SHIP?
ManagementMember-managed
ManagementMember-managed
ManagementMember-managedManager-managed
Why member-managed?Simpler.Active owners.Have a voice.
Why manager-managed?Limit power.Passive investors.Non-member managers.Employee equity.Future control.
RIGHTS & DUTIES OF THE CREW
MEMBERSMembers owe a duty of loyalty and a duty of care
MANAGERSManagers must perform in good faith with the care of an ordinary prudent person
OFFICERSIf a member, has the duties of a memberIf not a member, has the duties of a manager
INDENTURED
SERVITUDE
A membership interest is personal property, assignable in whole or in part
- TELEVISION TIMEOUT -
BANKROLLING THE
OPERATION
Capital Contributions
Member Loans
In writingNo ownershipReturnReturn of cash
Third PartyLoans
InvestorsIntra-state OfferingPrivate PlacementCrowdfunding
IT’S NOT MY FAULT!
Unremitted Sales Tax and Employee Withholding
Personal Acts of Members and Managers
Wrongful Distributions
Personal Guarantee
Pledge of Property
Piercing the LLC Veil
SAILING IN FOREIGN WATERS
What constitutes
“transacting business” in
Ohio?
- INTERMISSION -
Drafting the Operating Agreement:How to Build an Unsinkable Company
Operating Agreement1. Formation provisions2. Management & voting3. Transfer, impasse, capital call, & dissolution4. Distribution & allocations
Formation provisions
1.
Management & voting
2.
Why member-managed?Simpler.Active owners.Have a voice.
Why manager-managed?Limit power.Passive investors.Non-member managers.Employee equity.Future control.
Management & voting
2.
Transfer, impasse, capital call, & dissolution
3.
Transfer restrictions
3a.
Transfer prohibition.
Right of first refusal.
Push-pull provision.
Redemption and interest purchase rights.
Anti-dilution rights.
Tag-along and drag-along rights.
Mandatory sale triggering events.
Involuntary transfers.
Impasse3b.
Capital calls
3c.
Dissolution
3d.
Distribution & allocation
4.
Operating Agreement1. Formation provisions2. Management & voting3. Transfer, impasse, capital call, & dissolution4. Distribution & allocations
Operating Agreement Mistakes
COMMON MISTAKESUsing a non-customized or DIY operating agreement
COMMON MISTAKESMissing essential provisions
COMMON MISTAKESFailure to finalize and execute the operating agreement
COMMON MISTAKESFailure to periodically review and update the agreement
COMMON MISTAKESFailure to have new members execute the operating agreement
Thank you.
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