Part 2/4 | Business Law Basics for Founders: Operating vs. Shareholder Agreements

Transcript

Once you have your company's structure in place, you're going to want to make sure that you have the appropriate agreements. If you decided to form an LLC, you're going to want to set up an operating agreement. An operating agreement is a document between the members of a company that governs how the company is managed, what the ownership percentages of the company are, how expenses are paid, how decisions are made, and just the overall structure of how the company is going to operate.

So an operating agreement, as mentioned in a previous video, can be for a member-managed or a manager-managed LLC. In a member-managed LLC, the members collectively take part in the decision-making on how the company runs. In a manager-managed LLC, usually there's one member or outside individual who's appointed as manager of the company to make decisions and operate it in the way they best see fit. Having these structures in place is crucial to avoid disputes later on, and to set forth a clear understanding of what each member's roles and responsibilities are and how the company is going to be run.

Similarly, in a corporation, you'll want an agreement that governs the structure as well. For corporations, this is referred to as a shareholder agreement. A shareholder agreement, similar to an operating agreement, sets forth the structure of the company, how things are managed, how decisions are made, ownership percentages, roles and responsibilities, voting rights, and how and when additional stock can be issued.

So again, having these corporate structures in place is crucial to determine how a business is going to operate, and to make sure that each member or shareholder understands their responsibilities and roles, and how the business is going to be run. At TCLG, we can help you formulate, draft and revise your shareholder or operating agreement, to make sure that it covers everything you want it to and that the company can be run efficiently and effectively.