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Richard, Attorney
Category: Business Law
Satisfied Customers: 53724
Experience:  32 years of experience practicing law and a businessman.
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What is the best way for my interests to be protected in an

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What is the best way for my interests to be protected in an LLC operating agreement? I'm working together with my husband to launch a new company with several partners, all of whom have equity shares (I don't). He will be the managing member with 51% equity, while 3 others will be non-managing members who basically split up the remaining equity shares. Everyone is currently working for 'sweat equity', with no pay. I'm a retired CFO and spend around 20 hours per week on the new company providing administrative and accounting support, which is expected to increase. So my husband and I agree I should be included in the operating agreement and we'd like to know the best way to do it, considering 49% of the equity is already distributed to others.

Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good evening. Are you trying to protect your interests with respect to the other 49% or with respect to your husband in the event of a divorce? Or, both?

Customer: replied 3 years ago.

Both. Another primary consideration is for me to be able to take over the company if my husband wishes to pull out for any reason or wishes to stop acting in the management role or pre-deceases me. We want to be able to keep his 51% managing membership role and equity stake in the family (the 3 other equity members are not family). In the unlikely event of a divorce, how would I receive any compensation for services rendered in a scenario where the company becomes profitable and makes end of year distributions?


Do we have to split up his 51% equity between us on the operating agreement, or is there some way it can be stipulated to belong to both of us (similar to the way a house deed works)?





Thanks. First, you want to have an employment agreement providing for compensation for you for the work that you do. If you are not going to get paid in cash, then you need to be paid in ownership like everyone else...which would then dilute everyone's interests....the 51% owned by your husband and the 49% owned by the others. Second, to protect yourself against death, divorce or if your husband wants to leave the want the Operating Agreement to provide that in the event of any your husband's death or if he wants to leave the business, you have the right to purchase your husband's interest for $1. In the event of divorce, the Operating Agreement should provide that the 51% interest will be divided equally between the two of you in the divorce settlement or as otherwise agreed upon.

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Customer: replied 3 years ago.

I have a couple more questions regarding the operating agreement. How do I continue working with you?


Also, do you provide general legal reviews for operating agreements or know of someone who does?



You can simply ask for me at any time and I will be happy to help.... "SeekingtoRenderAid"

I'm not allowed under my terms of service to provide direct representation to you, but I would be happy to help you with any particular provision of your operating agreement. It's pretty important to get the Operating Agreement in good order before this gets going while everyone is happy because these businesses are like relationships...if you don't get the agreement resolved now, it gets really ugly when everyone is no longer happy. :)

I can also tell you the most critical things you want to make sure you address in your Operating Agreement:

1) Initial Contributions

2) Additional Contributions, if necessary

3) With regard to (2), are they required or optional; if made, are they treated as loans with a preference or as contributions which change ownership?

4) How are profits and losses allocated?

5) How and when are distributions to be made?

6) How is the LLC managed? Vote required for operating decisions? For major decisions?

7) Compensation to owners for working? Limitations on other compensation to owners and affiliates to keep anyone from re-directing money

8) limits on competition; Non-disclosure of trade secrets

9) What happens on death, divorce, or if someone wants out? How to value interests?

10) Rights of first refusal regarding sale of ownership interests and/or sale of business.