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Why Not Having A Written LLC Agreement Puts Your LLC Business On The Chopping Block

Jun 24, 2008
The American Law Institute creates a legal publication each year summarizing the major lawsuit cases each year concerning limited liability companies.

Well over half of the cases involve misunderstandings, disputes or disagreements between a Member and the LLC or among Members themselves. In many of these cases, the problem could have been avoided with a proper written LLC Agreement.

It would be malpractice for a lawyer to represent a new business owner client in forming a limited liability company for a business and not insist on that client having a written LLC Agreement to govern the new business.

This is a clear sign that if you are going to form your LLC yourself, do not make the mistake of most do-it-yourself-ers and not adopt a written LLC Agreement for your new legal entity.

Worse yet, if you and any other Members agree on certain matters orally but never reduce it to a writing, you are more than tripling the costs of address any later disputes. Oral agreements are very difficult to prove and resolve in a lawsuit.

LLC Agreements represent the fundamental rules, rights, obligations and processes for the business. As with any other legal agreement involving significant stakes, it should be in writing.

Every Member should review and agree to the LLC Agreement prior to becoming a Member. At the beginning and immediately after formation, the initial Members need to get together to address and agree to all the important matters in the LLC Agreement.

For a multi-member limited liability company, just the discussions and negotiation amongst each other about LLC Agreement matters is an important risk reducing activity.

For a single-member entity, having a written LLC Agreement proper for the business is a key factor to ensuring and preserving protection against personal liability for the single member.

LLC Agreements provide a road map and, in essence, a user manual for the owners and operators of the business. Members should possess a reasonably detailed practical understanding of their limited liability company and the LLC Agreement.

Do not let your LLC end up as a victim of a fatal lawsuit where everyone loses. Start off the right way by insisting on a proper written LLC Agreement for your LLC business. If you can afford the services of an experienced lawyer, this is money well spent. If not, insist on the use of a professional, well drafted LLC Agreement form.
About the Author
Free Report about the LLC Agreement: The 5 Things You Must Ask and Answer in the LLC Agreement. Visit The LLC Learning Center at http://www.The.LLCExpert.com - the premier information website for the LLC business owner.
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