Marlin

THE FINE PRINT

A vital, yet often overlooked, part of an LLC

- BY RALEIGH P. WATSON, ESQ.

I often hear vessel owners, brokers and others in the marine industry ask why they need an attorney to form a limited liability company, when filing one form online can typically accomplish it. The truth is you do not need an attorney. However, forming the entity itself is not the most complex part of the process. Rather, it’s the documents that go along with it, including corporate resolution­s and an operating agreement, among others, that are often more important. Though not typically required in most states, the operating agreement in particular carries a great deal of value, especially when a company is comprised of multiple members.

WHAT IS IT?

An operating agreement is signed by all members, and establishe­s the framework and structure of the business. The agreement can be customized to fit the relevant operation and arrangemen­t between the members, but it always contains certain informatio­n. To begin with, the document identifies the members and officers of the company, which is especially important in states where such informatio­n is not public record. It also covers the company’s governing rules, including managerial structure, distributi­on of profits and expenses, voting rights, and the affairs to be conducted when a member dies or perhaps wants to sell an ownership interest. To put it another way, the operating agreement provides a documented set of rules, rights, obligation­s and procedures to reference when a dispute arises between some or all of the members.

MULTIMEMBE­R OPERATIONS

Partnershi­ps are quite common in the sport-fishing industry. For example, there are many scenarios in which two or three people own boats or charter operations together. A partnershi­p can be a great way to split expenses and responsibi­lities, but it can be difficult to keep all parties’ interests infinitely aligned. The unfortunat­e reality is that most partnershi­ps eventually fall apart.

I have two close acquaintan­ces currently dealing with failed partnershi­ps, both of which started out profitably but are now in lengthy disputes resulting in litigation. Neither of these partnershi­ps had operating agreements in place, which makes the situations much more difficult, time consuming and expensive.

BUYOUTS

A crucial part of an operating agreement are buyout provisions, especially as it relates to partnershi­ps. Some state laws might even force or require dissolutio­n of a company without such an agreement. A buyout can be triggered by a member who simply decides to leave, but also by other types of events, including bankruptcy, death, retirement, disability or even a divorce settlement in which an ex-spouse is given an ownership interest in the company.

The reality is that all limited liability companies should have an operating agreement in place.

The buyout provisions should establish guidelines for managing changes in ownership and identify methods for preventing unwanted buyers from obtaining an interest in the company. The provisions should also specifical­ly outline how to value the ownership interest at the time of a member’s departure. Normally, the provisions provide an option for other members to buy back the ownership interest from a departing member within a certain period of time. The buyout provisions can greatly vary in complexity depending on the type and size of operation, but it is a crucial part of the operating agreement and would certainly be a huge benefit to my two acquaintan­ces described above.

The reality is that all limited liability companies should have an operating agreement in place, especially when there is more than one member. A company can certainly be formed without the assistance of an attorney, but I do advise seeking help from a profession­al. There are many ways a dispute can occur, and a thorough operating agreement is an important tool to ensure that terms are agreed upon at the time of formation.

 ??  ??
 ??  ?? +
ABOUT THE AUTHOR
Raleigh Watson is of counsel with Miller Law, PLLC, a maritime law firm in Jupiter, Florida. He is also an avid angler.
+ ABOUT THE AUTHOR Raleigh Watson is of counsel with Miller Law, PLLC, a maritime law firm in Jupiter, Florida. He is also an avid angler.

Newspapers in English

Newspapers from United States