When Making A Little "Change" Can Cost You A Fortune...

You have been in business with your two “partners” for just under a year. While business is growing, you are starting to see that changes need to be made regarding the internal structure of the business. For example, it is too cumbersome to require everyone’s approval for every small decision you make- it hampers business operations. You also think that you are pulling more weight than your other partners and should have more decision-making authority in general. What do you do?

Well, let’s assess this scenario in the context of an LLC. You should first look to your Operating Agreement to ascertain what types of decisions require what kind of vote from the members. So, does redistributing membership interest or equity require a majority vote or unanimous approval? What will it take to appoint an “Operations Member” or convert the LLC to manager-managed -and if it already is, make changes to allow a manager to have more authority? Do you vote in accordance with your membership interest/equity or is the voting handled “one man, one vote”? Answering these questions will determine your outcome.

If you do not have an Operating Agreement or if it is silent on these issues, you will have to look to State Law to determine what will happen. In a number of cases, it may not be what you want. What if you all pulled a boilerplate template when you started and it does not reflect how you want to handle these situations at all? In either of these cases, if you all are not in agreement, reaching a resolution will likely result in incurring legal fees and costs. At a minimum, you and your fellow owners would have to participate in some sort of dispute resolution process like mediation or even worse- litigation. This can become extremely costly and in the end, bankrupt you or cause your business to fold! We have seen this happen many times. Take the time on the front end to meet with an experienced attorney and avoid unnecessary trouble on the back end. This will help you to avoid costly situations - those that are easily-anticipated AND completely unforeseen. Call Great Lakes Legal Group today!


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