Four Documents Your business Should Have
I sound like a broken record to my clients – “let’s get that in writing.” Why? Every business should have the four following documents. Once you realize you need a particular document or it would have been nice to have a particular transaction memorialized in writing – it is too late. It is important to have a written record of your businesses’ transactions.
- Code of Regulations or Operating Agreement. A corporation’s governing document is a code of regulations and a limited liability company’s governing document is an operating agreement. A governing document provides a written record as to the relationship of the owners and how the business is to be run/operated. For example, will a shareholder or member have the unilateral right to cease being an owner of the business? What percentage vote is necessary to admit another owner to the business? Are the owners personally responsible for any of the debts of the business? How much authority will the board of directors or officers have in the running of the business (corporation) or will the business be run by a manager or board of managers or the members (limited liability company).
- Meeting Minutes. Regular meetings should be held to review the operations of the business. The purpose of meeting minutes is to memorialize important decisions – such as will another person be admitted as an owner and under what terms, stating the terms and approval of any major decisions – such as the purchase of real property, the starting up of a new product line or the hiring of a key employee. Meeting minutes are also important to refer to if a dispute ever occurs between co-owners of the business.
- Buy-Sell Agreement. If a business has more than one owner, then it is imperative that the business have a buy-sell
agreement in place. The terms of a buy-sell agreement are triggered when a particular event occurs – the death of an owner, the disability of an owner, the divorce of an owner or if an owner attempts to transfer his/her ownership interest to a third-party. The buy-sell agreement is a contractual agreement that if a triggering event occurs then the business or the other owners have a right of first refusal to purchase the ownership interest prior to it being transferred to a third-party. For example, if an owner dies, then the ownership interest would be inherited by his/her estate. However, if a buy-sell agreement is in place then the business has the right of first refusal to purchase such ownership interest from the estate. Another issue addressed in a buy-sell agreement is the valuation of the business. The business can be valued based on an agreed upon formula or an agreement to obtain a valuation of the business.
- Customer Contract. Whether you are selling a service or a product, your business should have a written contact with its customers. The purpose of this contract is to simply and explicitly state the terms of the deal and it does not have to be long. How much is being charged, when will the customer pay and will the customer obtain any discount for payment within a certain time period? Is the business making any representations or warranties that the service or product will achieve a particular result, last for a set amount of time, etc.
Taking a few moments to ensure that the transactions that impact your business are in writing will provide you with more certainty as to the rights and responsibilities of your business and the owners.
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This article does not provide legal advice or create an attorney-client relationship. If you have any questions or would like to learn more about this topic or if you have other legal questions, do not hesitate to contact Chris Corpus, Esq. of Corpus Law Inc at 216-973-2475. Copyright Christopher A. Corpus 2016.