Operating Agreements And Bylaws
Operating agreements for LLCs, or bylaws for C-corporations, are essential for successful companies. CEOs know the combination of market and governmental forces influence their company’s “up-and-down” cycles. Highly qualified directors for a corporation or members of an LLC can provide helpful advice for management. However, such advice is weighed under the purview of the company’s operating agreement or bylaws.
Operating Agreements Assist In Navigating Business Cycles
Frequently, an LLC is organized by the joint inventors of a widget. The articles of organization are filed with a Secretary of State, but the joint inventors failed to have an operating agreement in place prior to selling widgets. Sometimes the widgets (that may begin as an experiment in someone’s garage) become a multi-billion dollar international company.
Since human memories are faulty, particularly under the stress of managing a new startup, operating agreements help keep the members focused on the company’s business and profitability. Without an operating agreement, the transition from an LLC startup to an international company can be painful for the joint inventors/owners.
Key Provisions
The founders of the LLC may consider an Operating Agreement that addresses some of the following:
- Goals for sales and profitability
- Declaration of each member’s ownership interests in the Intellectual Properties
- Maximum quantity and type(s) of equity units
- Type of equity units issued for a member’s capital contributions to the LLC (e.g., licensed/leased, sweat equity, transfer of title, working capital, etc.)
- Qualifications for membership and maximum number of shareholders (Note: membership may be limited to certain classifications of investors as defined by the federal securities acts and regulations)
- Vesting of members rights and privileges
- Day-to-day management of the LLC–by members or nonmembers–and restraints to management’s authority
- Annual and/or special meetings–quorums, majority, supermajority
- Milestones for ceasing operations or selling the LLC–asset purchase agreement, bankruptcy, equity sale, merger, re-branding the company, etc.
- Requirements for a withdrawing member or the estate of a deceased member
- Conditions for forced withdrawal of a member from the LLC
The success of your business and its Intellectual Properties are directly related to sales, profitability and current/future market value. A well drafted operating agreement (bylaws) can make the road to achieving your goals less bumpy.
If you have questions about Intellectual Property matters, an operating agreement or the organization of a Limited Liability Company, please contact Business Patent Law, PLLC . We welcome the opportunity to discuss possibilities for your business and intellectual properties.
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