Governing Documents2017-03-10T20:50:11+00:00

GOVERNING DOCUMENTS, ESSENTIAL AGREEMENTS & LEGAL FORMS

Governing documents are the materials necessary to form your business and those that set forth the framework by which its operations will be governed.  Depending on the number of owners/members/investors, it is often also wise for business owners to execute other agreements and legal forms to ensure their rights and responsibilities are clearly defined and protected in order to avoid future conflict or legal action.

An operating agreement in an important agreement among limited liability company (LLC) members governing the LLC’s business, and members’ financial and managerial rights and duties. Without an operating agreement, a state’s often unpredictable and complicated LLC statues and case law will govern the LLC.

Specifically, an operating agreement defines each member or manager’s rights, powers, and entitlements and spells out capital accounts, membership interest, distributions of profits and allocated tax responsibility. Many founders make the critical mistake of attempting to draft their own operating agreement or relying on the increasingly ubiquitous “one-size-fits-all” online operating agreement generators to save money.

However, having a well-thought-out and strategically tailored operating agreement drafted by an experienced business attorney is an imperative for any new LLC.

Bylaws are the foundation of how a corporation is governed and are an essential legal document for any corporation. Bylaws spell out the rules and regulations for a corporation’s internal administration and management, including the voting rights of shareholders, election of officers, dispute resolution procedures, and taking on corporate debt. Many founders make the critical mistake of attempting to draft their own bylaws or relying on the increasingly ubiquitous “one-size-fits-all” online bylaw generators to save money.

Even worse, some new business owners decide to forgo drafting bylaws at all, and instead relay on a State’s often complicated, unpredictable, and counterintuitive corporation statutes to dictate how their corporation will be governed. Having well-thought-out and strategically tailored bylaws drafted by an experienced business attorney is an imperative for any new corporation.

Similar to bylaws for a corporation, the articles of organization are a document outlining the governance of a limited liability company (LLC), along with the operating agreement.

The articles of organization typically includes the name of the LLC, the type of legal structure, the registered agent, the purpose of the LLC, whether the LLC is managed by members or managers, the effective date, the duration, and the names and signatures of the incorporators.

The articles of organization are filed with the secretary of state, along with w filing fee, to create the LLC.

For general partnerships, limited partnerships, LLPs, & LLLPs, the governing document is a Partnership Agreement. Like the governing documents for other business entities, a partnership agreement sets forth the rights and obligations of the partners, the remedies for breaching the agreement, and numerous other important aspects of the partners of a business venture.

Common provisions included in a partnership agreement include:

  • Percentage of ownership
  • Allocation of profits and losses
  • The authority of the individuals to act on behalf of the partnership The power to make decisions on behalf of the partnership
  • The manner in which disputes are resolved
  • And many more depending on the particulars of your business

A common error amongst new businesses is to hire employees before establishing their basic employment policies and related documents. Every employer should have an employee handbook that sets forth the policies, procedures, and philosophies of the business. It also expresses the type of conduct expected of the employees and the consequences for failing to adhere to such standards. The handbook should be prepared in light of the company’s own vision, culture, and unique environment. On the other hand, employers should be careful not to over commit themselves and thereby set up greater expectations for employees than they are ready—or able—to meet.

Nondisclosure agreements (NDAs) clarify what information and materials a business deem to be proprietary and confidential. They also set out the obligations upon employees to protect and preserve such information and material and include the employer’s remedy if and when an employee breaches one of the agreements.

In the business context, NDAs are commonly used when two companies, individuals, or other entities are considering doing business and need to understand the processes used in the other’s business for evaluating the relationship. Thus, NDAs protect a new business or startup by safeguarding employee and founders’ intellectual property and ideas.

A strategically drafted and well-defined NDA is a must have prior to engaging in any business conversations with an outside party.

In order to avoid unwarranted claims and to protect proprietary information, new businesses should clearly define the rights, obligations and procedures regarding inventions and trade secrets. Such agreements include: invention and secrecy agreements, agreements for submission of employee suggestions, and a nonconfidential submission contract.

If a company’s website collects information from its visitors, and virtually all websites do to some degree, a privacy policy should be drafted and posted prominently on the website. A privacy policy must be tailored to the specific needs of the business and the characteristics of the website itself. While many business owners simply “cut and paste” a privacy policy, this is a situation where one size does not fit all. The more personal the information that is collected, the more imperative a comprehensive policy is for the website. When determining what type of policy is necessary for a particular site or company, all aspects of the company should be taken into account—e.g., customer service, marketing, technical, executive, and legal departments. Some helpful questions to consider are:

  • What information will be gathered on the site?
  • What will the information be used for?
  • How is the information gathered?
  • Who will use the site?
  • Will the information be shared with third-parties?
  • What information may be collected in the future?

Finally, the policy should be review periodically to ensure it is accurate and it is not representing an inaccurate level of protection.

Terms and conditions of use inform visitors of a website of the rules governing its use. These are rules that visitors are required to obey in order to continue using the site. If a user does not agree with the terms, the simply cannot use the site—there is no negotiation. Terms and conditions of use should be properly tailored to the activities of the business and the website. Like privacy policies, this not a case of “one size fits all.”

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