Jaburg Wilk

Existing Business Checklist

Jaburg Wilk Existing Business Owner Legal Checklist

The following are important considerations when you are operating a business with a partner or partners. Careful and diligent up front planning can lessen or eliminate future problems and provide a roadmap for the company's operations. Either a Shareholder or Operating Agreement will provide guidance to the company.

The Relationship Between the Owners

  • How long have you been in business?
  • What are your respective roles?
  • Number of years of experience in this specific business?
  • Is the role of each owner clearly defined?
  • Respective voting percentage?
  • If equal, is there a tiebreaker mechanism?

What capital or other financial resources/contributions/guaranties did/is each owner providing to the business?

  • Has value been placed on goods/equipment if contributed by 1 owner?
  • Did owners contribute capital as debt?
  • Did owners contribute capital as equity?
  • Are profits to be distributed?
  • Did owner take a security interest in company's assets to secure loan?
  • If debt, what is the interest rate and repayment terms to the owner?

Is the entity going to incur other debt? Bank loans, equipment or vehicle loans/leases?

  • Have either or both owners personally guaranteed any of this debt?
  • Does owner have "right of contribution" from other owner if they are forced to pay on the guaranty?

Is the entity going to incur other debt? Bank loans, equipment or vehicle loans/leases?

  • If yes, what is the percentage of contribution?
  • How is the return of owners' capital determined?

What type of entity should be formed?

Limited Liability Company

If no, skip to Corporation. If yes, answer the following

  • Manager managed or member managed?
  • Who is the manager?
  • Is there a successor manager?
  • What are the specific duties of the manager?
  • How can the manager be removed if he is not performing his duties?
  • If the LLC is member managed what are the duties and responsibilities of the members?
  • How is profit and loss distribution allocated?
  • How is profit and loss tax allocation allocated?
Corporation
  • Taxed as a Subchapter S Corporation
  • Taxed as a C Corporation
  • How are the shares owned?
  • Who are the officers?
  • Who are the directors?
  • Is a super majority vote required for certain issues?
  • Is there an agreement on how owner(s) are compensated?
  • Are the owner(s) eligible for bonuses?
  • If yes, how are bonuses determined?
  • What benefits do the owner(s) receive?
  • What expenses will the company reimburse to the owner(s)?
  • Can the owners' employment be terminated?
  • If yes, under what circumstances?
  • Are there provisions for death or disability of owner?
  • Are owners subject to restrictive covenants?
  • If yes, what are the length of time and the geographical scope of limitations?

Stocks and Membership Interest Considerations

  • Upon an owner's termination, is the company required to purchase owner's stock?
  • If yes, how should the value and payment terms be determined?
  • If buyout is company's option, how is the price of the buyout determined?
  • Upon owner's death/disability, is there a mandatory buyout of their interest?
  • How are price and terms going to be determined?
  • Is the buyout funded by insurance?
  • Can either of the owners force the other owner to sell?
  • If yes, under what conditions?
  • What is the price and terms of the forced sale purchase?

Are you at ease with all of these questions and your answers to them? If yes, congratulations! These are all items to consider and discuss with your partner or partners. Operating documents that memorialize your mutual understanding are essential. We can assist you in crafting agreements that will help keep your business – and your partnership – intact.

 

Got Questions About The Checklist?
(ex. 555-123-4444)