Shareholder Agreements, Bylaws, LLC Operating Agreement

Shareholders Agreement and Articles of Association

A shareholder agreement is different from a charter. A charter sets out the terms of corporate governance for the day-to-day operations of a company. A shareholder agreement is an agreement between shareholders, which establishes their rights, obligations, interaction with each other, actions to be taken in the case of dispute or death, or disability of one of the participants.

A charter must indicate:

• The name of the LLC
• Оffice address
• Name and address of the company registration agent
• The name and address of each of the members of the LLC
• The time period for which the LLC is created (if it is created for a specific period)
• All management data (names and addresses of all top managers)
• Liability of LLC participants for obligations and debts in cases not provided for by law
• In some states, it is also necessary to indicate in the charter the purpose of the LLC

A shareholders’ agreement must indicate:

• Rules and procedure for voting and decision-making by LLC participants
• The method for increasing or decreasing the authorized capital
• Rules for the withdrawal of a participant from an LLC
• Rules for the allocation of a share for new members of the LLC
• The rules for the sale of an LLC participant’s share to third-party investors

Operating Agreements

Operating agreements are the key document used by an LLC. All financial and functional actions of an LLC are spelled out in it. The main purpose of creating this document is to create a clear algorithm of actions for managing internal operations per the specific needs of LLC members. After all members of the LLC sign the operating agreement, it acts as a formal agreement.

Operating agreements protect members from personal liability to the LLC. Without this formality, an LLC would resemble a sole proprietorship or partnership.

Oral agreements between LLC participants are usually misunderstood. All business agreements must be set out in writing in an operating agreement to avoid misunderstandings or disagreements. In the event of a conflict between the participants, you can and should refer to this agreement.

If an LLC does not have an operating agreement, then the default rules apply to all LLCs in a particular state that does not have an agreement signed by all parties. Local state laws regarding LLCs are usually too general, so it is not recommended to rely on them. It is always better to draw up an agreement that suits your company.

An operating agreement can specify many things formally, such as banning members from selling their shares without approval from other members, or that they must try to sell their shares to other members before looking for third-party buyers.