What Should the Operational Paperwork Cover?
The operational paperwork must lay out how you will make business decisions (especially those with no consensus). You should typically avoid unanimous decision-making processes, even if you think that all the co-founders agree with every decision.
The operational paperwork must also lay out how much money each person is putting in to start the business. This section will also include what will happen if the business needs more money, and how follow-on capital will be delegated among the founders.
These are technically two different sections, but this should cover when the partners will be able to take the money out of the business, and if the partners ever get re-paid for the investment they put in. This will not just explain the high-level aspects of this, but also explain what the process of payback looks like.
Bad things happen sometimes, so it’s best to be prepared. This section explains who inherits the shares of the company for a deceased founder, as well as who the beneficiaries of the company are.
This covers what to do if one of the partners doesn’t want to continue working anymore. There are several options moving forward from one of these situations, so you should discuss this thoroughly with your co-founder.
What Types of Operational Paperwork Is There?
Partnership Agreement (LLP’s, general partnerships):
A partnership agreement is probably the most important document to draft before you start investing time and money into any joint venture. Simply put, the partnership agreement formally lays out: the decision-making process, the initial capital contribution, the salaries and distribution, the process in the case of a death or disability, and the dissolution.
Operating Agreement (LLC’s):
Many states require that LLC create an operating agreement, which offers a framework of their business. The LLC operating agreement typically contains the: members’ percentages of ownership, members’ rights and responsibilities, members’ voting powers, allocation of profits and losses, management details, and the fiduciary duties of members and managers.
Articles Of Incorporation (C-corps, B-corps, S-corps):
Though the articles of incorporation do not lay out the organizational aspects of your company, it provides the secretary of state with basic information pertaining to your business. This information includes: company name, purpose, address, and officers to name a few. Articles of incorporation allows you to lay out how much stock your company will issue and what rights come with those shares. Within S-corps, you are only allowed to issue one class of stock, which means that all shares must have identical rights and value.
Corporate Bylaws (corporations)
Corporate bylaws basically outline your organization’s day-to-day operations. This document will include the structure of the organization, the duties and responsibilities of a corporation’s members, details about the board of directors, information about when and where directors’ and shareholders’ meetings will be held, and a list of committees.
More formal business structures may require you to keep corporate minutes for all of your corporate meetings. This is extremely important, as minutes are not only legally required, but also provide the company’s official records. Essentially, minutes just keep track of what is said, by whom, and at what time. The conversation doesn’t have to be recorded verbatim, but try to get the general idea of what’s being said.
A buyout agreement is a binding contract between partners which discusses the future ownership of the business. This can include: whether a departing partner will be bought out, what price will be paid for the departing partner’s share of the company, who can buy the shares from the departing partner, and what other events may trigger a buyout.
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