Here’s what happens when you get your operating agreement from a legal forms company.
I just finished helping a client negotiate a buyout. In English, that means he and his partner stopped longer seeing eye to eye on how to run the business so the partner offered to buy my client’s shares in the company.
We spent a month negotiating and getting nowhere when the partner’s attorney proposed adding someone new to the company without my client’s permission. This type of thing normally doesn’t fly without at least a majority vote. Of course, these guys were 50/50 partners and were already hostile, so agreeing on something was not going to happen. I asked for a copy of the company’s operating agreement, which they had bought from a
Continue reading Small Business Horror Story #7: Pre-Packaged Operating Agreements
Today I received a call from a potential client who was called before the Nevada Department of Taxation about $60,000 in taxes, penalties, and interest he owes from a business he stopped operating in 2009. Apparently he simply closed the doors of the business and changed his address. Three years later he’s on the hook for this money partly because he failed to request the Department of Taxation cancel his tax permit.
When you’re closing up shop, it involves far more than just closing the doors. Here are just some of the things to consider when shutting down your business in order to avoid personal liability…
Follow any termination or dissolution protocol outlined in an owners’ agreement, Make sure all your debts are paid or that arrangements have
Continue reading Small Business Horror Story #6: Not Properly Closing Your Business
The first step in starting a business is to choose a name. In my article on How to Start a Business in Las Vegas, I say, simply, “make sure no one else has it.” Maybe I need to elaborate.
In addition to ensuring no one else has the entity name by checking with the Secretary of State, making sure no one else has licensed the name with local business license bureaus, and making sure you can reserve a domain with your company name, you want to check the federal trademark database.
Whether you go to all this trouble really depends on the type of company you have and its potential for growth. If you are Joe’s Mobile Detailing, chances are you’ll stick within
Continue reading Small Business Horror Story #5: Trademark Denied
One of my clients has been struggling to pay his $13,000/month lease. During a phone call about a year ago, his landlord told him, simply, “pay what you can.” At that time my client began paying about $6,000 a month while begging the landlord to move him to a smaller space within the same complex. Though the landlord never moved him, the client continued to pay the reduced rent.
The complex was recently sold to a new owner whose asset manager (during a meeting at which the client’s accountant and I were both present) assured my client that his reduced payments were fine and would become irrelevant as soon as she found him a smaller space within the complex for about the same rent. Her words, and I quote: ”You have
Continue reading Small Business Horror Story #4: Did Your Landlord Reduce Your Rent? Prove it.
A potential client called me. We’ll call her Helen. Over the last ten years, Helen’s partner “Jane” had perfected this FABULOUS idea that would make them both rich. Six months ago, Helen quit her lucrative job and had since worked full-time assembling Jane’s scraps of papers and mental notes into a formal proposal they could shop around to potential clients. Jane and Helen had hired a lawyer (not me) to put together an operating agreement and Jane had promised that Helen would become part owner in the company. Helen even ponied up close to $10,000 as startup capital. Sounds like the start of a great relationship, right? Well, it wouldn’t be a horror story if it was.
The longer Helen talked, the more concerned I became.
Helen had cashed out
Continue reading Small Business Horror Story #3: If You Don’t Listen to Your Gut, at Least Listen to Your Lawyer
I recently met with one member of a two-member LLC with no operating agreement. We’ll call my client Jane and her partner Joe. Jane was concerned because Joe was engaging in activities that could jeopardize reimbursements the company receives from the government for the services it provides. Jane voiced these concerns and Joe promptly “erased” her from the company. He physically locked her out of the office, refused to return her mailbox key, removed her name from and access to the company’s bank account, and convinced most of the employees to sign an agreement prohibiting them from speaking with her. Without an operating agreement, nothing technically prevented Joe from doing all these things, even though Jane was an active member in the company. Luckily, Jane managed to get her name
Continue reading Small Business Horror Story #2: No Operating Agreement and the “Eraser”
Whenever I sign a new monthly retainer client, I conduct what I call a “legal checkup” on the business. I review the company’s formation documents, licensing, employee or contractor agreements, lease agreements, service agreements, customer contracts, etc. to find improvements I can make to better protect the company and its owners.
Wait, let me clarify. I *request* the client provide me these documents so I may review them. Often, it takes the business owner(s) a while to gather the information and sometimes they simply ignore my requests, preferring that I instead focus my efforts on putting out fires. While I’m a great firefighter, my real value lies in working proactively
Continue reading Small Business Horror Story #1: Shady Partner + Generic Operating Agreement = Disaster