Starting a business is an exciting venture, especially when you’ll be earning money doing something you love to do. But, before you start your business, basic documents have to be prepared to register your company and have it become a legal entity within the confines of state and federal laws.
Drafting these essential documents is not as intimidating as it may seem. With the help of legal templates, the documents you may need to start your business, such as LLC operating agreements, partnership agreements, and business plans, can be prepared effortlessly. But, first, let’s look at why you need to prepare these documents and the information they contain.
Preparing the LLC Operating Agreement
One of the top priorities when starting a business is choosing a business structure. There are various structures to choose from, including:
- Sole proprietorship
- Limited Liability Company (LLC)
- Nonprofit corporation
Each structure has a different accountability system and applicable tax laws. For example, choosing an LLC business structure for your business provides specific accountability and tax benefits. It also offers limited liability for all owners.
What Information Does an LLC Operating Agreement Contain?
If an LLC structure is the business structure you choose, you would draft an LLC operating agreement. Some states require you to prepare and submit an LLC operating agreement but not all. Delaware, Missouri, Maine, California, and New York are the only states that require one.
However, it’s essential to prepare one, regardless of whether the state requires it to start your business. The LLC operating agreement helps get all owners on the same page regarding the rules they must follow. If there are no other owners but yourself, you can prepare a Single-Member LLC operating agreement.
Here are components that can make up an LLC operating agreement:
- The state the company is registered in
- The professional services or business purpose the company provides
- Company details
- Owners’ initial investment and voting rights information
- Owners’ subsequent investment responsibilities
- Conditions and voting requirements when adding new owners to the company
- Conditions and requirements when owners voluntarily leave the company
- Owners’ meeting and voting conditions
- Company management appointments
- Company tax and accounting structures
- Owners’ profit and loss assignments
- Annual report conditions
- Company dissolution and disbursement conditions
- Owners’ unanimous consent conditions
- Owners that are eligible to sign contracts
- Non-compete clauses and additional terms
- Signing details
Preparing Partnership Agreements
If a partnership business structure is more suited to your business situation, then a partnership agreement between two or more people who will own the business needs to be drafted. However, different types of partnerships can be formed, such as a limited partnership (LP), a limited liability limited partnership (LLLP), a limited liability partnership (LLP), and a general partnership. Each of these partnerships comes with its advantages and disadvantages depending on how the partners operate the business.
What Information Does a Partnership Agreement Contain?
When forming an LP, LLP, or LLLP, these partnerships require filing a partnership agreement with the state, but this requirement does not apply to a general partnership. Nevertheless, it would be good to draft a partnership agreement so that all partners are aware of the conditions and terms to be followed.
Here are the elements that can make up a partnership agreement:
- Partnership details
- Business details
- Voting, cost, and profit allocation details
- Management roles details
- Individual partner details
- Partners’ responsibilities
- Partnership accounting and financial details
- Conditions and voting requirements when adding new partners
- Partnership shares disbursement and conditions when partners have withdrawn from the partnership
- Partnership dissolution conditions
- Conflict resolution procedures
Preparing Business Plans
When starting a business, it’s a good idea to prepare a business plan. Government regulations do not require you to file a business plan, but one should be drafted regardless. A business plan provides a map for you of how you intend to market, finance, and operate your business to reach your goals and for others if you are seeking loans or investments.
First, determine what sector your business is in:
- Professional services
- Real Estate
- Art, Entertainment, Recreation
- Information Technology
- Farming and Agriculture
- Food and Hospitality
- Whole trade
Then construct your business plan information into this kind of outline and attach supporting documentation.
- Overview of business plan
- Company description
- Analysis of the market your business is in
- Business structure and management plans
- Business operation plans
- Marketing and advertising plans
- Finances your business will need and how much of that you have
- Financial forecasting
Basic documents that outline how you will structure your business, such as LLC operation agreements and partnership agreements, and how you plan to build your business according to a business plan will help you start your business with confidence. Knowing some of the essential documents needed to start your business and how easy it is to draft them will get your new business up and running in no time.