It is no surprise that the LLC has become the most popular limited liability entity to form in the U.S. The flexibility afforded by the LLC structure is attractive to many entrepreneurs, especially small businesses. There’s one important step that owners of an LLC should not overlook: drafting the operating agreement. Today’s post highlights some of the main benefits of drafting an operating agreement for your LLC.

What is an Operating Agreement?

It’s a contract between the owners of the LLC (referred to commonly as “members”) and the LLC itself. The operating agreement includes terms that detail (among other things) the management rights, distribution of cash, allocation of profits of losses, and how members can join and exit the company.

Setting Clear Management…

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Kyle Hulten recently wrote on the iVLG blog about the value of contingent contracts when negotiating agreements. It’s a great read and below I’ve highlighted some of the key takeaway points from Kyle’s article.

What is a contingent contract?

You probably guessed it. A contingent contract is a contract that includes contingencies, i.e. future events that may occur and change the terms of the agreement. Some of the most well-known contingent contracts are in professional sports. Athletes often receive additional money if they achieve certain goals. Another common example is in the employer-employee context. You may hire an employee and incentivize that employee to work hard by providing a non-discretionary bonus if the employee performs beyond a certain target, e.g. if employee…

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As a small business owner, you’ve most likely read or heard the term “consideration” when reviewing and executing contracts. What exactly is consideration? And why does it matter to understand the idea of consideration in the context of a contract? Well, in order for your contracts to be enforceable, there must be consideration.

The Legal Definition
A lawyer will tell you that consideration is a bargained-for exchange of something of legal value. And “something of legal value” can vary from a promise to do (or not do) something, or creating, modifying or destroying a legal relationship. For a contract to be enforceable, there must be valid consideration.

In short, in order for a contract to be enforceable, each party must give up something…

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In an opinion released yesterday, the Washington Court of Appeals served up a nice reminder of how important it is to understand and be familiar with the terms of your contract.

The dispute was between Conagra Foods, a potato processor, and DC Farms, a potato producer that had some issues making satisfactory deliveries to the processor. Conagra Foods determined that DC Farms was not going to be able to complete delivery according to the terms of their contract and therefore delivered notice of termination, alleging that DC Farms had breached the contract.

DC Farms filed a lawsuit claiming that Conagra Foods breached the contract because there was a notice-and-cure provision in the contract and rather than giving DC Farms notice and a seven…

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