Forming an LLC: When to Consult an Attorney
With the rise of online DIY legal documents, when should you attempt it yourself and when should you consult an attorney?
First, What is an LLC Operating Agreement?
An LLC Operating Agreement is a document that describes the operation, management, and the tax elections of the LLC. In a single member LLC, you are committing to writing your agreement with yourself. In a multi-member LLC, the document is a contract between all parties regarding the operation of the LLC.
So, Do I Need an Attorney to Write my LLC Operating Agreement?
As complexity increases, so does the value of an attorney’s counsel.
Single member LLC
Here, the Operating Agreement is truly more a formality than a necessity. Not to say that the Operating Agreement is unimportant, but it’s value is more to establish the LLC as an entity separate from the owner rather than to guide the owner how to run the business. Online services that provide documents specific to your state will probably suffice. Having personally reviewed the Pennsylvania templates provided by NoLo and Legal Zoom, they are perfectly adequate for most single member LLC.
The disadvantage of DIY documents is you the lack the valuable legal counsel regarding other important business formation matters you many not have considered, such as intellectual property, employee matters, local zoning and permitting matters, tax compliance, and legal compliance.
I highly advise consulting an attorney when forming a multi-member LLC. When two or more people/entities form a business, the Operating Agreement is no longer a formality but now addresses voting rights, membership rights, decision-making authority, tax accounting, non-compete provisions, and (most importantly) how the owners will be paid.
An attorney will not only explain the ramifications of these provisions, but will also guide the conversation between the parties to reveal potential conflicts, such as:
- what if one party wants to sell his/her interest in the LLC,
- what if a party dies,
- what is one party actively works the business and the other party is a passive investor,
- what if the LLC needs capital and one party cannot/will not contribute.
The attorney will advise how to resolve these (and other) conflicts. A DIY service will not only fail to raise most of these issues, but will not provide the counsel necessary to solve the issues.
Whether a single member LLC or a multi-member LLC, a competent attorney will provide a customized document that meets your specific business goals and complies with your industry’s regulations. For low risk matters, such as a single member LLC, DIY products will usually suffice. For higher risk matters, such as a multi-member LLC, an attorney provides invaluable counsel.