Starting a business is an exciting time. It's the best opportunity to lay a foundation to establish your business' structure and avoid liability and conflict down the road.
If you’re starting a partnership, you don't need a foundational document. Partnerships are created by the act of conducting business together. Once partners agree to begin a new venture, however, a partnership agreement is important to spell out the partners' rights and obligations. Most partnerships also register an assumed name with the Minnesota Secretary of State’s office that allows them to conduct business under a name other than those of the partners.
Corporations and LLCs come into existence when Articles of Organization (for LLCs) or Articles of Incorporation (for corporations) are filed with the Secretary of State. Articles are generally brief documents containing basic information about the business, such as the name and purpose. Most small businesses prefer to limit the information stated in the Articles, as they become public documents once filed and can be difficult to amend.
Business formation doesn’t end with filing Articles or creating a Partnership Agreement. Drafting rules for the operation of the company and for selling or transferring shares should be a top priority for every new business. Depending on the type of company, this can include Bylaws, Buy-Sell Agreements, Member Control Agreements, and more.
Bylaws govern management and decision making. They operate as an agreement between the company and its owners about how the company will function. Bylaws can determine the number and role of managers or officers, specify voting requirements for governing boards, set grounds for company dissolution, and more. Knowing your company's Bylaws and how to work within their framework can help you preserve the protections that having a corporation or LLC provide.
Buy-Sell Agreements (also called Shareholder Agreements) govern ownership and ownership transfers of a business. Buy-Sell Agreements are signed by the business' current active owners and normally bind anyone who acquires an ownership interest afterwards. Important provisions include:
Member Control Agreements (for LLCs) and Shareholder Agreements (for corporations) can replace or supplement Bylaws in small, owner-governed businesses and can simplify operations and record-keeping. Like Bylaws, these agreements can serve as operating manuals for small businesses and can govern decision making and voting, appoint managers or officers, and assign duties to various positions.
Operating Agreements are usually hybrid documents that include provisions normally found in both Bylaws and Buy-Sell Agreements. They are often used by LLCs as a simplified way to combine all the company's vital governance provisions into one document.