Attorney v. Legalzoom: Where should you buy your LLC Operating – Partnership Agreements – Shareholder Agreement? How could you possibly not spend smart if Legalzoom.com and those other types of online business formation sites offer corporate formation for hundreds of dollars while your local corporate attorney charges thousands? After all, an “LLC Operating Agreement” is an “LLC Operating Agreement”, right? It is all the same, free or charged… You are the smarter business man because I found it for less online. RIGHT? |
Couldn’t be more WRONG… but why?
Well, sure, Legalzoom is going to most likely cost less than your attorney to register a company, but your attorney also acts as your registered agent, Legalzoom helps you select one. You might consider that splitting hairs, but if you are ever served with a lawsuit, subpoena, or anything else by process server, you are sure going to be wishing you had an attorney at your disposal to advise you on what needs to be done.
However, the real difference comes with the preparation of formational instruments, like Shareholder Agreements, LLC Operating Agreements, Joint Venture Agreements, Partnership Agreements, and all those instruments and agreements that fall in between, IC Agreements, NDA/NC, etc. – let’s call them “Formational Agreements” – there is no online step by step process in the world that could properly, and effectively draft these instruments.
Turns out when it comes to Formational Agreements, you might even find a better deal than Legalzoom.com or one of its competitors, Office Depot, or by downloading one online for free, or perhaps receiving a free copy of one with your purchase of corporate books and records for your newly formed entity. However, what possibly more could a template such as an LLC Operating Agreement be more than a, LLC Operating Agreement template?
Florida Partnership Agreements
Well, in Florida the corporate code is shallow, to say the least. Remember, we are a purely capitalistic society. Thus, for the law to get too partnership-agreement controlling over rights and obligations, it would undermine the fabric of our nation and its history. Sure the law covers the basics, and the most evil of corporate actions, like dissolution disputes to some degree to breach of fiduciary duty to fraud on other members/shareholders to fraud on the corporation, but what corporate code lacks is direction to handle the most common of disputes, or what act or omission of a shareholder/member or officer/director/managing member to a great degree constitutes a dispute. In every case, for the most common of disputes, the law looks to the Formational Agreement. So, why don’t templates handle the mess where they law looks to them for guidance? Just like people, no two companies are built alike. There may be managing members for LLC’s, partners for partnerships, and officers for corporations, but their rights and obligations, and where their power ends and the shareholders’/members’ rights begins is wholly subjective to the dealings of that one, particular company.
Let’s put that into perspective… have you ever talked with another family member, friend, co-worker, or colleague about opening your own business together, or perhaps with a group? You know, how “he” is going to do this, and you are going to do “that”, and you are going to bring this third guy you know into the company because he is well connected in the industry, and that fourth guy because he has the “doe” to fund the company and knows how to manage the finances of the company… Well, that leads to four different understandings of the business, its operations, and the intentions or understandings between the partners of this new “venture”, and there is no template on legalzoom.com or through search on google.com in the world that is going to miraculously lay out the terms and understandings of each of the four partners rights, obligations, powers and understandings like you discussed with your friend when “brainstorming” the birth and organization of the venture.
You might ask, then where does that lead to if you or one of your partners start a dispute? After all, you all remember agreeing from the very start… Excellent point, but when it comes to partnership disputes, if the Formational Agreement lacks the subjective understanding and dealing between the parties, and also fill in the blanks of the dealings not otherwise understood or discussed between the partners because it was never conceived, the partnership dispute will be a “he said, she said” argument of that “agreement from the very start”, with no end in sight. In many situations disputes arise that other partners were wholly unaware were brewing. Mostly because there is a “disconnect” between the partners, one that a properly drafted Formational Agreement would cover.
Or perhaps, your company is more simpler… you didn’t need that third and fourth guy, and you and your friend decide to open that business, fund it, build it and develop it on your own. You pay for your corporation through Localadzoom and sign the $100 Formational Instrument you chose through a drop down menu reading “LLC Operating Agreement”. However, that template Formational Agreement has “supermajority” voting language, or even “majority” voting language contained in the instrument. You signed the template agreement rather than retaining an attorney to draft the Formational Agreement properly imprinting the structure, dealings, understanding, rights and obligations of the members, and after leaving your job, putting a second mortgage on your home, and spending the last year building this business, you and your partner disagree on whether or not you are going to take on this new job for the business. A “home run” job that could make or break the business, as opposed to taking another year to work the business up through “base hits”. Well, the template you signed has a majority requirement for voting. You and your partner cannot agree, the vote is split, the business stops operating because there is an operational deadlock as you want “base hits” and your partner wants the “home run”, and your partner files an action for dissolution so he can take that client while destroying the life you put into this company.
All because that template failed to have “deadlock safety provisions” to protect the partnerships against voting deadlocks, i.e. 50% ownership = 50% vote, or from another standpoint, had unanimous voting requirements for any job requiring “X” investment of time/money by the company to support and satisfy. This is just one small example of a business gone wrong. I can assure you, as I not only draft Formational Agreements for a living, I litigate over them, that this is the most basic of all examples I could give you. I have seen some doozy’s in my time.
So, why invest thousands of dollars into an attorney for the preparation of a properly drafted Formational Agreement? Because you are investing your life, your money and your time into your business, and where you have partners, or members, or shareholders, you are investing in them as well. Every deal starts with trust, motivation and direction, because but for those things, you wouldn’t be committing yourself to the deal. However, partnerships, companies, and businesses are like marriages, you have good times and bad times. A Formational Agreement not only serves as a road map to your company, for the obligations and rights of owners and the managers, directors, or officers that manage the company, but it serves as a prenuptial agreement as well. It is like an insurance policy for your business, it (1) covers the law for every loss that the corporate code fails to provide guidance for dispute resolution, and (2) in many cases it can help you avoid disputes altogether by proper corporate guidelines on management/member actions.
A properly drafted Formational Agreement is as subjective as your company, its inner workings, and dealings, and the personalities of its members/shareholders/partners and management. It is always a smart investment to spend thousands of dollars to protect two to ten to one hundred times that amount and rather than spending tens of thousands of dollars disputing over each party’s understanding of each person’s rights and obligations as a party to the company because there is no Formational Agreement, or you have a template Formational Agreement that lacks global language.
Florida LLC Operating Agreements
My method to draft these instruments? Well, let’s take an LLC Operating Agreement for example. I have about five different core versions that form the base of my draft for each client, each more complex than the next. For instance, I will use a different core version for a two member LLC than I would for a twenty member LLC with limited partners and investors. However, each word in those core versions has been written by my hand, through my experience litigating these matters for decades, as well as being a partners, member, managing member and principal of my own companies. I then interview the members of the company to understand their intended corporate dynamic. This interview breaks down the inner working and structuring of the company, and generally takes a couple hours, or an hour at the very least. I then draft the agreement based on that understanding, and seal the legal language to ensure that there are no “holes”, no “portions” of the Formational Agreement subject to different interpretations, and that the language of the instrument covers the operation of the entity, singularly or collectively, to avoid any deadlock or dispute. Finally, I ensure that all understandings between the members/managing members of their rights and obligations are incorporated into the Formational Agreement, and cover those aspects that the membership may not have considered or even thought of with their formational structure. If there is a dispute, a deadlock, a breach, or a question of action/inaction, the Formational Instrument draws out the original understanding of the parties, provides a set of instructions, and affords relief and remedies,reversing the dispute and otherwise, if the parties are dead set on litigating over the matter over principal, which happens more than you think, the scope of litigation is very narrow and the understanding between the parties clear for the Court to render a disposition.
Spend a dollar to save twenty, and in some corporations, it is more like spending a penny to save a hundred dollars… That is what you are doing when you hire an attorney to prepare a Formational Agreement. After all, you intend to invest your money, your life, your livelihood, and your time and resources into others by creating a company with friends, family or colleagues, and just like a marriage, there will be that, “thick and thin”, but unlike a marriage that only has a prenuptial, imagine a literal set of instructions on how the company is run, your company, not some template. That will surely save you, your partners, and your whole company, along with everything you have all put into the company down the road when that inevitable dispute arises.
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