Formation of a limited liability company or incorporation of a corporation puts the liability shield in place to protect your personal assets as much as possible from company debts. You need to consider whether you want to take the additional steps necessary to protect the assets of the company from its own debts, and the owners of the business from each other.

We will give you pointers with respect to protection of the assets of the company from its own debts in the process of forming your company or preparing your members or stockholder's agreement.

If yours is a single-member limited liability company or corporation, you obviously do not need to be concerned with protection of the owners of the business from each other. This question arises, however, the minute you have more than one person involved. On the one hand, having a firm understanding from the beginning as to what happens in the event of the death, disability, divorce (and so on) of one of the owners is advisable. It's easier to agree before there are significant assets to fight about. On the other hand, hiring someone to draft such an agreement involves additional expense. While it is easier to agree at the beginning, there's less money available to pay for the agreement.

We provide, in the process of forming a company and at no extra cost, a Right of First Refusal Agreement. In essence, this binds each owner to offer that owners stock or membership interest to the other owners before selling it to a third party, at the same price and on the same terms as the proposed sale to a third party. This is a start, but not a solution to every problem which could possibly face the owners in their dealings with each other.

Dealing with all of those problems can get expensive. Startup companies are normally not in a financial position to hire a lawyer and tell that lawyer to do whatever it takes to come up with a perfect agreement. The trick, as always, is to do the best you can within your budget.

We offer a Members Agreement (for limited liability companies) and a Stockholder's Agreement (for corporations). These agreements provide for yearly evaluations of the business, buyout provisions in the event of death, disability, incapacity, divorce, bankruptcy, other involuntary risks to an owners interest and termination of employment, whether voluntary or involuntary. Further, the agreements deal with restrictions on outside activities (if any), insurance as a funding mechanism for buyout provisions, and contain an agreement by each of the owners to cooperate in the future with respect to adding any new material to the agreement if and when any such additional material appears advisable, a noncompete agreement for the departing owner and an undertaking by a departing owner not to disclose any of the trade secrets of the business. Finally, there are provisions which provide instructions to the owners with respect to the method of amending the agreement if they desire to amend it, so that the owners can draft their own modifications. We recommend that where the owners make such modifications, the modifications should be reviewed by an attorney. At the very least you would want a trained, disinterested person to tell you whether or not self drafted modifications would accomplish their intended purpose if a dispute between the owners ever landed in a court.