Forming an LLC can be a liberating, exciting moment in your entrepreneurial journey. By establishing a formal entity, you’re taking critical action to realize your business dreams. Working with a seasoned attorney, you can maximize protection from legal problems and minimize your tax burden.
All that said, the process is not without its pitfalls. Be aware of the following common drafting errors if you decide to set up your business as an LLC:
- Failing to sign the operating paperwork. Just like you need to turn the key to start your car’s ignition; you also need to sign the appropriate paperwork in the appropriate places to establish the LLC.
- Using templates found online or at a bookstore that don’t meet your needs. Avoid choosing the wrong template or an inappropriate or outdated template.
- Drafting specialized terms on your own or otherwise creatively amending documents. The technical terms used in the drafting of LLC paperwork can sound like gibberish to the untrained. However, altering the language or restructuring elements of a document could lead to unintended results, such as the loss of protection from legal action under certain circumstances.
- Setting up conflicting terms that do not comply with provisions that are already in place. The resulting complications can lead to costly mistakes or unauthorized company decisions.
- Drafting ambiguous conditions for succession. The business needs to a have a plan in place for contingencies, such as the death of a partner, retirement, bankruptcy, serious illness, divorce or other complications to the relationship. Address how the LLC will handle these issues, including a possible buy out and setting a fair valuation for the partner while honoring his or her contributions to the company. Consider, for instance, dividing the business into percentages, so that remaining partners are affected proportionately.
- Dividing the LLC into even numbers, such as 50/50. If the partners disagree, the division needs to be loaded in favor of one, however slight, in order to break the tie.
Even if you have prior experience establishing business entities and you understand many of the financial and legal nuances of LLC formation, strongly consider retaining the services of an experienced business attorney to help you draft or amend your LLC documents. Call the ILP team today at (800) 827-7784 to explore legal solutions for your venture.