Commercial and non-profit organizations can choose from different business arrangements that come with unique guidelines and issues to address. If you are starting a business, you can choose a sole proprietorship, a partnership, a corporation, or a limited liability company (LLC). Every kind of business structure is governed by operational, financial, practical, and tax issues. For instance, for some entities, the business owner pays taxes on every income earned. For others, the business pays taxes on profits. Also, the business owner may need to pay taxes on personal income.
In general, operational requirements are outlined in written documents. Corporations have a corporate by-law and a charter. Partnerships must have a partnership agreement in writing that the operational requirements set forth. Sole proprietorships don’t need to have written operational requirements. To learn more about this legal aspect of running a business, click here.
Important Provisions in Business Operational Requirements
When setting forth operational requirements, below are provisions that must be considered carefully:
- Decision-making. Business owners must understand which business decisions require most of the partners, which decisions require unanimity, and which ones every partner can make on their own. Also, a managing partner can be given authority to make business decisions.
- Capital contributions. The operating agreement must detail the financial contribution of every partner to the business and what to expect if more money is needed when running the business.
- Salaries and compensation. An operation agreement must make it clear when business partners are paid from the profits of the company. It may outline the profit percentage to be utilized for salaries.
- Succession issues. The operation agreement must outline what occurs when a partner dies, becomes ill, or retires. An experienced attorney can review how wills, insurance, and trusts impact business succession issues and usually suggest a buy-sale agreement.
- Company dissolution. Such provision must detail what occurs if the company is not profitable or the owners have differences that cannot be resolved.
Other Issues to Consider
A lot of other decisions must be reviewed, depending on the kind of business, the operational costs, who can hire workers and contractors, and the maintenance funds. Other issues that must be considered when drafting an operational agreement include the business name, business location, the purpose of the business, compliance responsibility, record-keeping responsibility, and the authority of every partner, member, or shareholder.
By-laws must offer detailed explanations for a lot of daily operational issues applicable to partnerships. But corporations are different from partnerships in a lot of ways. An experienced business lawyer can explain such differences.
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