Friday, September 9, 2011

Penny Wise Pound Foolish: Have A Lawyer Draft Your LLC Documents (Part 3)

You copied an Operating Agreement you found online, signed it as is, and now you learned that your business partner, who owns 50% of the membership interests, needs money and assigned the interests to his friend, who you find intellectually and ethically challenged.  You grab a copy of the Operating Agreement, read the clause on assignment of membership interests, and find it allows any member to assign the total membership interests without consent of the other member.  Guess what, you now have a new partner.       

If the OA had been drafted by an experienced business lawyer, it would have included a provision requiring consent of and/or giving the non-selling partner a Right of First Refusal to purchase the membership interests on the same terms as offered to the third party. On the other hand, if you believed that not hiring a business lawyer was a good way to conserve resources, you now have a very undesirable business partner because of this Penny Wise Pound Foolish behavior.  

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