The majority of new small businesses forming in Massachusetts are taking advantage of the flexibility and simplicity of a Limited Liability Company (LLC). An LLC allows the organization to limit personal liability of its owners and operators; avoid double taxation by taking advantage of the flow-through taxation structure; avoid the administrative and procedural headaches and documentation required of corporations; and allow its owners/operators to expand its ownership base, and adjust profit and loss allocations. LLCs are for the small start-up business and the more sophisticated, large enterprise.
Rather than acting as a sole proprietorship, a single member LLC may be created by a single individual conducting permissible and legal business activity. In this instance, only Articles of Organization are required for the LLC, however, every LLC should have a written Operating Agreement. If your LLC does not have an Operating Agreement, then Massachusetts law (M.G.L. ch. 156C, et seq.) will determine the rights and obligations of the managers and members of the LLC, as well as set out rules for determining how certain factual scenarios are resolved (e.g. the termination of business affairs; or the death or disability of an owner). Your Operating Agreement will set up and detail your organization’s policies and procedures for profit and loss distributions; succession; adding new owners (members); management and governance; and death/disability/wind down/liquidation.
If you are entering into a partnership with one or more partners, then it is critical that you set out and enter into a written Operating Agreement. In essence, you will be able to formalize the importance features of your partnership, and ensure that both parties’ rights and interests are protected. Here, your Operating Agreement for your Massachusetts LLC can establish procedures for management, day to day decision making, the amount or type of authority of the managers, the exit of a member from the partnership, contributing capital to the organization; and adding new members to the partnership.
Beyond the basic documents for an LLC, you may need additional documents depending on your type of business and operational structure. You may need agreements with employees regarding confidentiality of information, trade secrets, customer lists and the like; no solicitation of clients and customers; and non-competition agreements to preclude your employees from working for your immediate competition, or setting up a competing enterprise in your market. You may also want to sell or vest ownership of the organization to some key employees or set up a structure for succession of your membership interests. If you are purchasing or leasing equipment, or dealing with a commercial landlord or purchasing commercial space, you will certainly require written contracts in these instances.