LLC Operating Agreements: Cookie Cutter Documents Aren't Worth Much
A listserv for business planning and asset protection specialists currently includes a discussion on how to respond to a request for a "one page operating agreement" for a limited liability company. That led to this article by asset protection expert Jay Adkisson outlining the importance of carefully crafted provisions in an operating agreement in order to achieve the necessary level of asset protection. It also makes some great points about the need to review and update the operating agreement in order to keep up with changes in the business.
A qualified business and asset protection expert isn't charging by the word. We charge based on experience and complexity. The complexity lies in the situation and not in the document. A one page agreement can actually create more complexity than a longer document because of all that it leaves unsaid. Consider this: Which is easier to summarize in a few sentences -- the Lord of the Rings trilogy or a Harlequin romance?
The "simpler" document also creates more liability for the drafter because of the greater likelihood that th document won't work. And then who will be held responsible? If you are relying on the drafter's expertise to make the document right, why wouldn't you let the drafter pour as much into the document that he or she thought was necessary?
Think about it. The operating agreement governs the relationship between the members but it also establishes the boundaries between the members' personal liabilities and the company's creditors. Do you really want to rely on a single page document to do all that?
A qualified business and asset protection expert isn't charging by the word. We charge based on experience and complexity. The complexity lies in the situation and not in the document. A one page agreement can actually create more complexity than a longer document because of all that it leaves unsaid. Consider this: Which is easier to summarize in a few sentences -- the Lord of the Rings trilogy or a Harlequin romance?
The "simpler" document also creates more liability for the drafter because of the greater likelihood that th document won't work. And then who will be held responsible? If you are relying on the drafter's expertise to make the document right, why wouldn't you let the drafter pour as much into the document that he or she thought was necessary?
Think about it. The operating agreement governs the relationship between the members but it also establishes the boundaries between the members' personal liabilities and the company's creditors. Do you really want to rely on a single page document to do all that?
Posted by Karen Brady at 2/12/2010 2:49 PM 
Categories: asset protection, business planning
Tags: asset protection LLC operating agreement limited liability company
Categories: asset protection, business planning
Tags: asset protection LLC operating agreement limited liability company
These are all great points, Karen. Let me throw one more into the mix.
An operating agreement can serve as an operator's manual for the company. If the LLC owners have actually thought about the issues that might come up in the future, the Operating Agreement can help avoid future disputes.
I have had potential clients get back to me after reviewing my list of questions for prospective LLC owners, and say that, after thinking about it, they did not want to get into business together after all.
If they had simply signed a boilerplate LLC operating agreement, they would have found that out too late.
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I must admit that I haven't had the experience of business partners realizing that they don't want to be in business once they review our questionnaire for the LLC operating agreement. I do think I'll add a question in counseling that asks them if they learned anything about working together by filling out the questionnaire.
Karen
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