llc formation and operation; how to draft the llc operating agreement

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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