VIDEO: Operating Agreement and Corporate Documents – Georgia Car Law Authority

Your business exists but is it protected?

How do you protect yourself and your business from liability?

The first step is to make sure you have proper corporate documentation.

Without it, you could be subject to personal liability. That’s really bad.

Check out this video for more information.

Below is a transcript of the video:

I call the auto industry the Wild West for a lot of reasons, one of them, though, is that when you’re talking about corporate structure and creating a corporate entity or a company that is registered and that is operating properly, so many folks never get the corporate documents completed. I’m talking about an operating agreement, employment agreements, employee handbooks, the contracts that are involved in operating a business. This is something that especially in the car industry, you see very often. Somebody will just put some cars for sale on Craigslist, sell them with a pretty homemade bill of sale, take the money, and pocket it.

That is ripe for legal issues, as you’ll see when you’re watching these videos. There are cases that I have come across due 100% to preventable mistakes that the dealer or the business owner decides not to do or doesn’t know to do when they open the business. One of those is an operating agreement or some kind of governing document that governs how the business is operated. This is important whether the business has multiple partners or just one, whether there are 20 people in the business or there are two, it doesn’t matter.

The reason it doesn’t matter how many people you have to have these documents is that they end up applying to almost every situation that the business faces. Number one, they memorialize the structure of the business. When we were talking before about different types of business entities and how, for example, in an LLC, the owners can be protected from liabilityoperating agreement that is memorialized by the operating agreement, which would go through what happens in the event the business has to close, what happens to its assets, what happens if a partner passes away, what happens if somebody wants to buy into the business, what does the business do, and how is the business classified in its taxes.

This is all for two main purposes. There are lots and lots of reasons for this, but there are two major ones that lawyers like me come across all the time. One is when we are defending a business in a lawsuit brought either by a customer or a government investigation and we have to prove that this is a legitimate business, that this is not some fraud or it’s not some backyard operation, that this is a legitimate business that deserves protection for its members and has governing rules.

The other purpose is for taxes and for other government investigations. That’s more of a CPA issue, but for purposes like getting a bank account, for example, most banks will require to see an operating agreement or at a minimum, articles of incorporation. The secretary of state will give articles of incorporation when the business is registered, but the operating agreement goes further to help solidify the business, establish it, and memorialize the rules of the business.

It’s incredibly important to have one. Operating agreements can be ordered from lawyers – we draft them. I draft them regularly or there are some online. I would never, ever recommend that my clients use an operating agreement they find online, but in certain circumstances, that’s better than nothing. I understand that there are folks that are going to take that route, but it is better to find an operating agreement online than it is to not have one at all.

I would recommend having that operating agreement reviewed by a lawyer, especially if it’s just one that the person has just found through a simple Google search. It may not comply with all the laws of the state of Georgia, but again, better to do that and have something memorializing the rules of the company than to have nothing and be selling all these cars and opening up to liability with no agreement.

For more videos on the Georgia Car Law Authority series, please visit www.georgiacarlaw.com.

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