Warning: That standard LLC operating agreement template your friend gave you might cost you everything

I see this all the time in my small business network. People grab a free template off the internet or borrow one from a buddy in a different industry. Then they run into an issue with a partner leaving or a disagreement about splitting profits and find out their operating agreement says nothing about it. I had a guy in Phoenix lose $12,000 because his template didn't cover what happens when one partner stops working. The other partner just kept collecting half the revenue while the guy did all the labor. The agreement only talked about money contributions, not time contributions. Has anyone else seen a partnership blow up over a generic operating agreement?

3 comments

3 Comments

taylor1212d ago

That $12,000 story hits close to home. Did the guy end up having to sue to get his share or was he just stuck because the agreement only covered money?

wesley18112d agoMost Upvoted

Roll up to your small business meetup with a "free LLC template" like it's some kind of secret weapon, and then watch your partner sit on the couch collecting checks while you work 60 hours a week. Sounds like that Phoenix guy learned the hard way that a free template is worth exactly what he paid for it. I've seen partnerships end over dumber stuff like who gets to keep the coffee maker, but this is a whole new level of painful. At least with a coffee maker dispute you can just buy another one, you can't buy back 12 grand and months of your life. People act like paying a lawyer $500 is a scam, but that's cheaper than losing a whole business over a missing clause about sweat equity.

sarah81812d ago

Yeah but nobody talks about how these templates usually leave out what happens with client lists and intellectual property.