Business Structure – Bergmann Law LLC

What is an Operating Agreement and Why Do I Need One?

Posted by calgdasilvaon February 22, 2025in Blog Posts, Business StructureLeave a comment

Why Your Limited Liability Company (LLC) Needs an Operating Agreement

Starting a business is an exciting venture, and forming a Limited Liability Company (LLC) is one of the most popular ways to structure a small business. While an LLC provides flexibility and liability protection, many business owners overlook one critical document: the operating agreement. Even if your state doesn’t legally require it, and New Jersey does not, having an operating agreement is essential to protect your business and ensure smooth operations. Here’s why your LLC needs one.

1. Defines Ownership and Management Structure

An operating agreement lays out the ownership percentages of each member and the management structure of the company. Whether your LLC is single-member or multi-member, this document clarifies roles and responsibilities, helping to prevent misunderstandings and conflicts down the line. Clearly defined roles and responsibilities means that disagreement and dispute are less likely as your business grows.

2. Protects Your Limited Liability Status

One of the main benefits of forming an LLC is the limited liability protection it offers its owners. However, without an operating agreement, courts may view your business as a sole proprietorship or partnership, exposing your personal assets to legal claims and debts. A well-drafted operating agreement reinforces the separation between your business and personal finances, strengthening your liability protection.

3. Prevents State Default Rules from Applying

Each state has default rules that govern LLCs without operating agreements. These one-size-fits-all regulations may not align with how you want to run your business. By drafting an operating agreement, you can customize provisions related to profit distribution, voting rights, and dispute resolution, ensuring they align with your business goals. This is, in my opinion, the single most important reason to have an operating agreement. Do not allow your business to be governed by default rules and regulations. Govern your business in the way YOU best see fit.

4. Clarifies Financial and Operational Decisions

Without a written agreement, decisions regarding profits, losses, capital contributions, and distributions could lead to disagreements among members. An operating agreement clearly defines these financial aspects, reducing the chances of disputes and providing a clear process for handling financial matters.

5. Facilitates Business Continuity and Succession Planning

What happens if a member decides to leave the business, passes away, or becomes incapacitated? An operating agreement outlines the process for transferring ownership, buying out a departing member, or dissolving the business if necessary. This ensures stability and continuity, preventing legal and financial headaches in the future.

6. Enhances Credibility with Banks and Investors

Financial institutions and potential investors often require an operating agreement before they agree to lend money or invest in your business. A well-structured agreement demonstrates professionalism and foresight, making your LLC more attractive to outside funding sources.

7. Establishes Conflict Resolution Procedures

Disagreements are inevitable in any business. An operating agreement provides a framework for resolving disputes among members, potentially avoiding costly and time-consuming litigation. Whether through mediation, arbitration, or a voting system, having a predefined conflict resolution process is invaluable.

Conclusion

While an operating agreement may not be legally required in every state, it is a crucial document that provides structure, legal protection, and clarity for your LLC. Investing the time and effort to create one now can prevent significant problems in the future, allowing you to focus on growing your business with confidence.

If you haven’t drafted an operating agreement for your LLC, consider consulting Bergmann Law, to ensure your agreement meets your specific needs. Your business’s success and protection depend on it!

Did you know…you can (and should) call your lawyer before things go wrong

Posted by calgdasilvaon March 3, 2018March 3, 2018in Blog Posts, Business StructureLeave a comment

This is not only the best piece of advice routinely given to clients, it’s also the simplest: as soon as you think you might need a lawyer, make the call.

For instance, recently a landlord client called with a potential tenant problem. Two tenants, paramours sharing an apartment, broke up and one moved out. The remaining tenant could not afford the property on his own for long and called the landlord us to work out a solution before he was in trouble. In turn, the Landlord called us for assistance. Reasonably working out a negotiated lease termination allowed the tenants to end their lease without an eviction and credit impairment, while allowing the landlord to get new tenants in the property. The key is everyone did exactly what they should have, and the outcome benefited all. The tenant talked to his landlord before the rent was late or missing and the landlord called his lawyer for advice, rather than making a similar call a few weeks later when an eviction was necessary.

Everybody wins.

This principle applies to business disputes as well. Unfortunately, most of the business breakups we see are long, dramatic, and expensive. But every now and then a business comes to us early, recognizing things are not working. It’s much easier to dissolve the business and wind things up before there is financial hardship and hurt feelings. Early intervention saves everyone time, money and lowers the stress in what can be a very stressful event.

If you have a real estate or business issue, not yet a problem – just a concern, give us a call and we can talk it through with you.

Why Do I Need a Lawyer To Start a Business – I Have The Internet?

Posted by calgdasilvaon September 13, 2017October 17, 2017in Blog Posts, Business Structure2 Comments

September 13, 2017

Starting a business can be an exciting and overwhelming endeavor and Google seems reasonably equipped to answer all your questions – right? Maybe, but as you embark on your new venture, Google may not adequately solve your concerns in a way that protects you. Consider the following reasons to work with a knowledgeable business lawyer, rather than your favorite search engine:

First things first – the right structure is key. One of the most basic tasks in forming a new business is to choose an entity structure. This decision is critical as different entities expose you to much different levels of liability. Choosing the wrong entity could leave your business (and you individually) exposed to intolerable levels of liability against lawsuits. Conversely you may inadvertently overly complicate your structure when you are in an industry with very little need to worry about liability.
Business attorneys should work hand in hand with your accountant. Structure and other set up decisions are best made both between your attorney and your accountant. Do not be surprised with an improper structure for both you or your industry once tax season arrives. Set it up correctly from the start.
Protect your ideas and property. Protect your product ideas, production secrets, customer information, potential competition from your employees and anything else unique to your business. Doing so allows you to maintain a competitive advantage and shield yourself from others both externally and internally who could use your unique information for their own profit.
Employment lawsuits can stop a business in its tracks. Starting a business means you must comply with all federal and state employment laws, including legal procedures regarding employee pay, hours, overtime, sexual harassment, and discrimination. Failing to consult with a business attorney exposes your business to a variety of employment lawsuits and even one lawsuit can be the death of a small business. Do not take simple tasks like drafting job descriptions or interviewing procedures for granted. Consult with a business attorney and do it right.
Running a Business Can be a full-time job. Creating a new business involves a lot of paperwork and legal formalities confusing to even the savviest entrepreneurs. Drafting bylaws or operating agreements, complying with tax requirements and licensing concerns are most effectively handled with the assistance of a business lawyer.

Handing off the set up and operational structure issues to the right business lawyer allows you to get back into the business of running your business. Bergmann Law can walk you through the process of starting a business and set you on a path ensuring smooth operations and dispute avoidance. With years of dedicated legal experience, your business will be in excellent hands. Call our office and schedule an initial consultation.