Do You Have a Well-Drafted, Enforceable Operating Agreement or Shareholder Agreement?
06/10/2025One of the easiest ways to prevent disputes from jeopardizing your business is to have an operating agreement or a shareholder agreement that is clear and comprehensive.
The agreement should address the roles and responsibilities of the owners, decision-making, capital contributions, distribution of profits, departure of members (including withdrawal, removal, retirement, death, disability), liability, indemnification, dispute resolution, and dissolution of the business. A well-drafted agreement helps to minimize conflicts by clarifying ownership rights and providing a roadmap for resolving disputes that do arise.
If you don’t have an agreement or it’s vague, outdated, or missing crucial details, the consequences can be severe. You may end up in costly litigation. Even worse for LLCs, under New York law, failure to have a valid operating agreement can prevent a proper business dissolution, even when all parties want to part ways. You could be forced by the court to continue the business unless you can show that the management of the company is unable or unwilling to reasonably permit or promote the stated purpose of the company to be realized or achieved, or continuing the company is financially unfeasible.
No matter how many years you’ve been in business, it is good practice to periodically review your operating or shareholder agreement, if you have one, to make sure it reflects your wishes and the operations of the company. If you don’t have an agreement, get one.
Don’t end up in litigation. Contact me for a consultation. I can review or draft agreements that help you stay out of trouble and assist you with any disputes you are already facing.