LLC Operating Agreement Checklist

An operating agreement is the legal foundation document describing an LLC (limited liability company) ... this document serves the same function for an LLC as corporate bylaws serve for a corporation. Following is a checklist of items to be considered ...

GENERAL
1. Under what state law will the LLC be formed?
2. What is the name of the LLC?
3. Has the name been checked with the Secretary of State?
4. What is the purpose of the LLC?
5. What is the term of the LLC?
6. Is the LLC member managed or manager managed?
7. Who is the manager if manager managed?
8. Who is the agent for service of process?
9. Is the manager a limited liability entity?

CAPITAL CONTRIBUTIONS
1. What is the initial capital contribution of the managing member?
2. What is the initial capital contribution of the other members?
3. Will members be required to make additional contributions if necessary?
4. What happens if a member fails to make a required capital contribution?
5. What approvals are required to add new members?
6. Are members allowed to withdraw their capital contributions? If so, under what
circumstances?
7. Is a member entitled to interest on his or her capital contributions?
8. Does any member have any priority on distributions over any other members?

ALLOCATIONS
1. How are distributions to be divided among the members?
2. How are tax allocations made?
3. When are distributions to be made?
4. Will there be special distributions required to be made to at least pay for tax on each member’s pro rate income from the LLC?

MANAGEMENT OF THE LLC
1. How broad are the management powers of the manager?
2. What limitations are there on the powers of the manager?
3. If there is more than one manager, what actions require the consent of all of the managers?
4. Is the manager obligated to devote any particular amount of time to LLC matters?
5. Is the manager and its affiliates free to engage in other activities?
6. Is there any limit on the manager’s right to form other entities?
7. Will the manager be broadly protected from liability?
8. Will the manager be indemnified for acts taken on behalf of the LLC?
9. Under what circumstances might the manager be liable to the members for acts or omissions?
10. What specific duties does the manager have?
11. Will the LLC have officers?

COMPENSATION TO THE MANAGER
1. What fees is the manager entitled to?
2. What reimbursements is the manager entitled to?
3. Is the manager entitled to incentive compensation or a carried interest?

BOOKS, RECORDS, ACCOUNTS AND REPORTS
1. What books and records are to be maintained by the LLC?
2. What access rights will the members have to books and records?
3. What reports will the members be required to receive?
4. Who will be the tax matters partner?

VOTING RIGHTS
1. What voting rights will the members have?
2. What major actions can the manager take without other members’ approval?

MEETINGS
1. Where will meetings be held?
2. How can meetings be called?
3. What notices for meetings must be given?
4. What quorum is necessary for meetings?
5. Can actions be taken by written consent of the members?

ASSIGNMENT OF INTERESTS
1. Do the members have the right to assign their interest in distributions?
2. What rights does an assignee of a member’s interest get?
3. In what situations will assignment be prohibited?
4. What are the procedures for substitution of members?
5. What happens on the death, incompetency or bankruptcy of a member?
6. Is there a right of first offer or first refusal on transfers of interests?

TERMINATION OF A MANAGER
1. Under what circumstances can the manager voluntarily withdraw as the manager of the LLC?
2. What are the events that will result in the manager ceasing to be the manager of the LLC?
3. Under what circumstances can the members remove the manager?
4. What happens to the manager’s interest when it has ceased to be the manager?

DISSOLUTION AND TERMINATION OF THE LLC
1. Under what circumstances will the LLC be dissolved?
2. Under what circumstances can the LLC continue notwithstanding a technical dissolution?
3. How are distributions to be made on liquidation of the LLC?

MISCELLANEOUS
1. Which amendments to the Operating Agreement can be effected solely by the manager, without the consent of the members?
2. How are other amendments to the Operating Agreement to be effected?
3. When will amendments to the LLC’s Certificate of Organization have to be made?
4. What power of attorney is granted to the manager?
5. Is there an arbitration clause that governs any disputes among the members?
6. Are the members liable in circumstances other than for their capital contributions?
7. What competitive activities may the members engage in?

[Thank you, Small Business Kit]

How to Solve a Problem

1. Define the problem
2. Define a set of criteria for a good solution
3. Explore potential causes of the problem
4. Explore existing solutions
5. Identify alternative approaches for resolving the problem
6. Select the best approach for resolving the problem based on the criteria for a good solution (number 2 above)
7. Plan the implementation of this approach
8. Implement the plan
9. Monitor the results
10. Verify the problem has been resolved

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Our Purpose in Life

Ahhh, that classic question: What's the meaning of life?  Hmmm ... suppose it really is "42"?! (You'll have to see Hitchhiker's Guide to the Galaxy for those details.)  In the meantime, here's a chart that may help you with your answer ...

The SCORE SLATE Mentoring Guideline

The US Small Business Administration SCORE program has a well-refined guideline for business mentoring, using the acronym SLATE ...

S] Stop & Suspend Judgment
L] Listen & Learn
A] Assess & Analyze
T] Test Ideas & Teach with Tools
E] Expectations Setting & Encouraging the Dream

As important as what mentors do is what they don't do: they don't make decisions for the venture team.

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Marketing Brochure Prototype

A prototype marketing brochure is a good tool for "testing the waters" with prospective customers.

1. Easy way to test a new product, service, solution idea
2. Easy to iterate a concept
3. Easy to put in front of prospective customers for feedback: test, measure, learn
4. Customer can become part of the design process ... pencil and paper and eraser
5. Inexpensive ... time, money, resources
6. Works for most any idea concept
7. Flexible "size" (number of pages) although the fewer the better 
8. Can incorporate in the venture business plan, summary
9. Can use to design and develop a product and/or service based on prospective customer reactions to the product and/or service describe in the prototype brochure

Here's a "pencil sketch" of a marketing brochure template:

Starter Toolbox for Innovators and Entrepreneurs

Let's get ourselves some SPLUCK!

SPLUCK: an acronym for Skills, Passion, and Luck … traits shared by every successful Innovator and Entrepreneur. 

SKILLS can be learned. There certainly are a basic set of skills that most every innovator and entrepreneur must have ... but, they aren't necessarily the same set of skills for all.

PASSION is something internal to every individual … some have lots of it, others don’t. We can try to motivate passion in others, but it can’t be forced upon them. They either are, or they aren’t. Heredity versus Environment?  Closely related to Passion is Persistence ... someone passionate is usually someone persistent, too.

And then there's LUCK ... serendipity! Win the lottery!! YeeHaa.  So many folks wait for luck to change their lives. But the Innovator and Entrepreneur ... they don't wait for change to happen to them. Nope! They are the change they want to see in the world! They make their own luck!

SPLUCK: Skills, Passion, and LUCK! 

[Jim's TooSense: I was looking for word that would summarize the key traits of successful innovators and entrepreneurs. Many articles written about why they are good at what they do, and there is a diversity of other characteristics, too. But put them all in a big pot, and the big three that surface are Skills, Passion, and Luck. So I just slammed them all together into SPLUCK. And now you know the rest of the story!]

How Much Money Do We Need?

Q: How much money do we really need to get this new venture concept up and running?

A: It is usually not a fixed dollar amount ... most often, it's a range of desired funding versus the time for the venture to become stable (that is, consistently break-even). Too little money and the venture will not survive, too much money and some will likely be wasted.

The optimal amount is a trade-off with the length of time it will take for the venture to become stable (that is, consistently break-even week after week). The management team needs to know what results they can deliver if the investors do pony up the requested level of funding ... and what could happen with less money raised, or more money raised. The results are usually, but not always, a change in the time to become a stable company.

There are a variety of tools, spreadsheets, and more to assist in making financial projections and setting objectives. Here's a good one from SCORE: https://www.score.org/resource/financial-projections-template

A "lean" startup is a special case ... the venture is basically trying to launch and operate below the minimum level of funding need to become stable. Think of it as an experiment. There are things to be learned in a lean venture, and often the most important lesson is that the venture just isn't going to make it without a critical mass of resources. Another lesson is that money isn't the only answer. Too much money can actually be a bad thing, but usually not as bad as too little!

In general, the more money raised for a new venture, the faster that venture can become stable up to a point. Investors will often ask the range of funding the venture is seeking. What's the minimum level of funding to get it going and sustainable, and how long will it take? What's the minimum time to become stable, and how much funding will it take? And finally,  ... what does the venture team believe is the optimal trade-off between time and money?

A little humor: I once made a presentation to a group of "friendly" investors. Call them "friendly" because they already knew us (the management team). The investors had put a good deal of money into our venture, and were (currently) satisfied with the results. Now, we were seeking to raise new money for a spin-off.

In my presentation, I said we needed to raise $x million and it would take us about y months to get the new venture stable (consistently break-even) and sustainable. One of the investors asked what could happen if they put in half the money we were seeking. I said the venture could still probably make it but it would take so many months longer to stabilize, but that level of funding was still above the failure threshold.

The same investor then asked what could happen if we were able to raise three times the money we were seeking. The "wise guy" in me came to the surface. I said that level of funding was way above the amount needed to make it to the shortest possible time to stability, and that the management team would take the excess funds and all buy Porsches because the venture didn't need the money!  I point out again that these were "friendly" investors and I knew they had a sense of humor! They didn't throw me out the door. Rather, they had a good laugh and said those were exactly the "right" answers ... they were just testing the management team to make sure we knew where the end-caps really were!

--Jim

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Innovation Hot Spots

While innovation is often associated with new products, new gizmogadgets, a broader perspective shows innovation occurring in many areas of a business and often has little or nothing to do with products.

Here are some key areas of innovation opportunity for a business venture ...

1. Products (yes, still high on the list, of course!)
2. Services
3. Processes
4. Business methods
5. Business model
6. Revenue model
7. Positioning (relative to the competition)
8. Paradigm (a combination of several innovation areas)

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Tips for Writing a Venture Plan

1. Tell your story, tell it quickly, and tell the truth.
2. Make sure that on every page the reader gets the information you want them to get.
3. Creativity helps, but scale it back and be traditional with your headings and your formatting.
4. Use talking headings to send the reader in the desired direction.
5. Brand your pages; use appropriate colors; use images and charts and graphs to help reader understand key points; write short paragraphs; use headings that help the reader follow the story you are telling; caption your charts/graphs; use graphics to highlight your sentences and use sentences to explain the graphics. 
6. Avoid fluff.
7. Cite your sources. 
8. Every paragraph should represent a discrete chunk of information. Every paragraph needs a thesis sentence. This is normally the first sentence. The middle of the paragraph should add important information to elaborate on the main point. The last sentence of each paragraph should tie up the specific chunk of information and direct the reader to the next chunk of information in the next paragraph. The reader should know all of your main points by 'reading the first and last sentence of every paragraph.
9. When using bullets or other formatting maneuvers, decide what you want to emphasize, then use the appropriate marking words or graphics. To emphasize importance, for example, use words or phrases that indicate value; if you emphasize time, then use words that indicate chronology. Make sure that the mixture of bullets and numbers you choose conveys the right tone.
10. To proofread, print a copy and go through it out loud. Look for any place the reader stumbles out loud. Read it backwards if necessary. Have a friend outside of your team read it out loud and see where they get confused. Read slowly to catch basic errors. Allow adequate time to do all this ... it is time-consuming, so give yourself the time to become perfect.
11. When in doubt, check for rules of grammar and usage with a handbook. [Jim's 2 cents: Save Swing Jazz, Pelicans, and the Oxford Comma! ... Strunk and White, the Chicago Manual of Style, and the US Government agree!]

[Thank you, Randy Accetta]

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