Questions to Answer When Starting an LLC


Creating an LLC is easy. In Colorado, with a computer, an Internet connection, and $50, you can set up your business in about ten minutes. The only information you need to provide are the name and address of the registered agent, the principal place of business, and information about the person filing the articles of organization.

Similarly, I can make a few folds on a piece of paper, turn it into a paper airplane, and make it fly across the room. It’ll dip and crash after about two to three seconds of airtime, but it will, however briefly, fly. Building an airplane that will last for years and fly across the country without killing anyone, that’s a different story. That requires mechanics, engineers, and pilots. Of course, you could try to manage it all yourself, and, if you dedicated yourself to the task over many, many years, you might pull it off, but it’d be much more efficient to rely on the professionals to take you where you need to go.

Likewise, if you’re starting your own business by yourself, and you plan to work in the business by yourself, starting the business is probably something you can do without much effort. But whenever there is more than one person involved, you need to think about more than filing the articles of organization. And it’s best to work with professionals to help you get through the process.

If you want your business to start with a solid foundation, for an LLC, you should create an operating agreement containing provisions that deal with any contingency that your business could face. For example:

  • What will happen if one of the owners is killed or disabled while the business is in operation?
  • What happens if an owner needs to be fired or kicked out of the business, whether with or without cause?
  • Does the majority member have the right to drag along the minority members to agree to sell the business against the minority member’s will?
  • What happens if a member gets divorced?
  • If an owner wants to transfer his interest or assign it to someone else, is that ok?
  • What happens if someone is involved with misconduct affecting the company?
  • What happens if a member loses an interest due to bankruptcy? Will the remaining members have a right to repurchase the business?

Putting an operating agreement in place is the best form of insurance to avoid a costly and nasty legal fight after the fact. It also forces you to confront the difficult issues of running a business when everyone is calm and rational. Perhaps more critically, I have had a number of business owners learn during the process of drafting an operating agreement that they don’t want to start a business together.

Suffice it to say, if you can’t handle the process of setting up an operating agreement, you’re probably not suited to running a business together!

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