Are you considering going into business with a friend? A limited liability company (LLC) is certainly a great choice. Limited liability companies are easy to form, offer the tax advantage of a partnership, and the liability protections of a corporation. However, like any venture, you should do your homework in advance.
If there will be more than one member, an operating agreement is highly recommended. While not required, an operating agreement affords members tremendous flexibility in spelling out the rules that will govern the relationship going forward. Operating agreements may cover everything from voting rights, to profit distributions, to dissolution should there come a time when the relationship ends. If an operating agreement is not completed, questions and disputes are resolved by Wisconsin statutes and case law.
Chapter 183 of the Wisconsin Statutes covers LLCs. While the entirety of Chapter 183 is beyond the scope of this article, there are some important things to know, especially if you are going to be the member that is largely in charge of running the business.
A. Members owe each other duties of care and loyalty. These duties include holding LLC property, profits, and benefits for the company rather than for your own benefit and accounting to your fellow members. With reasonable notice, your fellow members are also entitled to view any records regarding the company’s activities, affairs, financial condition, and other circumstances.
B. Any distributions made by an LLC must be proportional among members on the basis of each member’s contributions or capital account.
C. Expelling a member from an LLC is not easy. An operating agreement providing other grounds for removal can be created. A member can only be expelled involuntarily by a court order finding wrongful conduct that is materially, and adversely affecting the company’s business or affairs.
Partnering with one or more friends or associates in a business venture can be exciting and profitable. A LLC is a great tool for forming the business. However, first educating yourself on your roles, duties, and responsibilities as an LLC member is important, and consulting with legal counsel to assist in drafting a detailed operating agreement can avoid problems down the road. Our experienced and knowledgeable business attorneys would be happy to meet with you to discuss creating an LLC.