Posted by: Robin Gronsky | August 7, 2012

Is a Shareholder Agreement/Operating Agreement Required by NJ Law?

When you create a new corporation or limited liability company for your business, you file the required papers with the New Jersey Division of Revenue.  When you are finished, you have a legal entity.  Legally, you don’t have to do anything more.  So, unlike New York, for example, a shareholder agreement (for a corporation) or an operating agreement (for a limited liability company or LLC) is not required by law.  But, it is highly recommended.

What does a shareholder agreement or an operating agreement do for you?  It gives a formality to your business so there is no confusion that you are a sole proprietorship or partnership.  It memorializes any oral agreements that you  and your partner have made.  New Jersey statutes will govern the operation of your business if you don’t have an operating agreement or a shareholder agreement.

A shareholder or operating agreement will set forth the owners’ percentage of interest in the business, the split of profits and losses, the powers and duties of the shareholders or members, and provisions for adding or removing owners.

It is smart to have a written agreement before the need for one becomes critical (i.e., your partner isn’t doing her share of the work, your partner becomes disabled and you don’t want to pay her a part of the profits since she isn’t doing any of the work anymore, or your partner dies and her widower wants to be bought out).  Call your business lawyer now to have a shareholder or operating agreement drafted.  No matter what it costs now, it will be cheaper than when a crisis with your partner happens.

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