AGREEMENT TO FORM A CORPORATION
A well-drafted Operating Agreement will:
Provision Information & Benefits:
Bona Fide Offer - Outside party's written offer to purchase with specific terms set forth.
FMV - The appraised or unanimously agreed upon value of the equity interest.
Transfer - Any sale, devise, assignment, transfer, pledge, gift, encumbrance or other disposition of any portion of a member's equity interest.
Transferor - The member who wishes to transfer.
Equity Ownership - Member's proportionate share of ownership.
Restrictions on Transfer
Member may not transfer any part of his equity interest without getting unanimous approval of other Members.
Rights of First Refusal
Option given to Company. Member wishing to sell or transfer any part of his equity interest must first offer such interest to the Company and other Members. The Company has the option to purchase the interest from the Member at a fair market value if there is no outside third party's written offer to purchase. If paying fair market, Company must pay at least 25% in cash and may purchase balance of interest pursuant to a promissory note. Company does not have to exercise this option.
Company given option to purchase, at fair market value, a member's interest who has died or been declared legally incompetent. Company must notify guardian or personal representative. Company must pay at least 25% in cash and may purchase balance of interest pursuant to a promissory note. Company may use proceeds of an insurance policy to pay for up to 75% of member's interest.
Members agree to at least one annual meeting to elect officers. Special Meetings may be called upon by either the Operating Manager or any two members. Written notice must be given at least three days prior to any meeting. (Quorom = Majority of equity interest represented at meeting, but any member may demand straight equity vote.) Members must attend meetings. (However, proxy voting is allowed.) Company has option to purchase interest of a member who misses three or more consecutive meetings. Written notice to member required.
Describes how profits will be distributed. Assuming profits are generated and no losses are projecte projected, each member will receive a cash distribution at least equal to his pro rata share of 50% of profits for preceding quarter.
Each member agrees that he will hold harmless and indemnify the Company and other members from all costs and expenses associated with defending any action resulting from his violation of the Agreement
All certificates of interest shall be endorsed with a statement indicated the certificates are subject to this Operating Agreement.
Members agree to vote their respective shares to elect executive officers for the Company. (Operating Manager, Vice Operating Manager, Secretary and Treasurer). The Operating Manager is the chief executive officer and is responsible for the overall operation and supervision of the business and must, when present, attend all meetings. The Operating Manager may sign contracts on behalf of the Company, unless specifically delegated to someone else by members.
Outstanding Equity Interest
Defines the Company's outstanding total capital or equity interest and how such interest is divided among the members. Additional equity interest in the Company must be authorized by unanimous vote of membership.
Describes who can make disbursements from Company bank account and what additional signatures are necessary.
The Operating Agreement terminates if: the Company ceases business; or declares bankruptcy, receivership, or it dissolves; or all the members voluntarily agree to terminate it.
Fiscal year begins January 1 and ends December 31, unless otherwise determined by resolution of Members.
All loans must be authorized by resolution of Members.
Such restrictive covenants offer the Company statutory remedies for violation and often prevent a Member from unfairly competing against it or disclosing its confidential business information. As always, ensure any such restrictive covenant is within statutory parameters.
Mediation and Arbitration
Mediation and Arbitration should always specify a location in Client's jurisdiction (preferably, in the same county where they run their business). Mediation is a non-binding way to settle the dispute quickly and amicably. If unable to settle in mediation, arbitration is first option available. Arbitration is the preferred alternative to litigation because of speed, cost, and ability to maintain low profile (no info is publicly available).
Always stipulate that the contract will be governed under whatever law the Client ordinarily conducts business. Always make sure that venue and jurisdiction are as convenient to client as possible.
No Modification or Waiver
No modifications except those specifically agreed upon by the parties in writing. Any waiver of a term or provision will not act as a waiver of any other provision.
Notices should always list the current and best addresses where each party may contact the other for whatever reason.
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