Welcome back. This is the third, and final, post in my three-part series on operating agreements. You can read Part I here and Part II here. So far, we've discussed why you need an operating agreement, and what that operating agreement should say. Now we're going to discuss what to do when things get ugly.
Maybe one of your members passed away. Maybe you lost a big client. Maybe your member/partner wants to put his wife or son on the payroll, is causing the business to purchase supplies from a business in which your they hold an interest, or is running personal expenses through the business. Maybe a key vendor has raised its rates, resulting in a significant impact on the bottom line.
Morale is low. Stress is high and things that once were easy now have become hard. It's time to dig out that operating agreement and call a lawyer.
I've seen and handled a number of these disputes in my own practice. In some cases, the dispute centered on an issue none of the parties anticipated. In other cases, the dispute centered on an issue addressed squarely in the operating agreement.
In most cases, however, the parties' operating agreement will hold the answer. That, more than anything, is the key takeaway from this series. No matter what the dispute is down the line, the operating agreement is the first place the parties will look for guidance. This justifies the cost of drafting an operating agreement. It is like an insurance premium. A little bit of money up front can save you a lot of money (not to mention headache and heartache) down the road.
With any luck, you read parts I and II and your operating agreement has a provision for whatever ails you.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
