People form LLCs because they are relatively easy and inexpensive to set up. However, if you don’t do any additional business planning, you run the risk that your LLC won’t function exactly like you imagined. Taking the extra step to draft a comprehensive operating agreement can prevent some potential internal disputes and save on litigation expenses.

Sets Forth Operating Guidelines

You can include a variety of management and operational details in your operating agreement. Do you want a manager-managed LLC or a member-managed one? How will voting rights work? What is the process if someone wants out of the LLC or wants to bring someone new in? Some of these are topics that can give rise to member disputes, so spelling them out ahead of time can reduce the potential for conflict.

Being able to plan ahead to reduce disputes, unexpected events, and misunderstandings is one of the main reasons to have an operating agreement. As time goes on, members may decide they want to take the business in a different direction and that goes against everything the company was founded to do. You can address a variety of issues in your operating agreement.

Helps Create Separation of the LLC from its Owners

An operating agreement can bring added formality to your LLC and help create even more separation between it and the members. This is important to ensure you are not held personally liable for the LLC’s debts and liabilities. All your business operations, finances, and activities must be separate from your personal accounts and owner activities. Having a signed agreement can set forth specific rules and operating practices that keep the LLC a separate legal entity with no question of co-mingling funds, etc.

Operating Agreements Can Address Uncomfortable Situations

No one wants to think about their own mortality, but what happens in the event a member dies? Or what happens if two members are married and suddenly divorce? These events can have a significant impact on your LLC and how things move forward. These are not necessarily easy topics to tackle, so addressing them ahead of time in an operating agreement can remove the personal and emotional elements from these business situations. In addition, it can protect the LLC if you are operating in a state that might suddenly make the estranged spouse a member. An operating agreement can protect you from suddenly having a new member that you do not want in your business.

Operating Agreements for Single Member LLCs

You might assume that if you’re a single-member LLC, you don’t need an operating agreement. You should still have one that addresses how things work if you bring in another member. It can also detail what will happen in the event you pass away or become permanently disabled. This decreases the burden for your loved ones who have to figure out how to handle things going forward.

Consulting a Washington DC Business Attorney

If you need assistance with your LLC and drafting an operating agreement, you need to speak with a knowledgeable Washington DC business litigation attorney. The team at Tobin O’Connor Concino P.C. have experience in all types of business organizations, including LLCs. Contact our office at 202-362-5900 to schedule a consultation.

Equitable Remedies

Equitable remedies are actions rather than a financial award. They are often granted when monetary compensation or other legal remedies do not provide an adequate resolution. The court may require that legal damages must be unavailable before a judge will award equitable relief. In other cases, the judge may award equitable relief if it’s difficult to calculate an actual amount of damages.

Some equitable remedies may include:

• Specific Performance — Specific performance is a court order that requires the breaching party to perform their part of the contract according to the original terms. This may be something like completing work or delivering goods that were already paid for.
• Contract Reformation — The court orders the original contract be rewritten to reflect the actual intentions of each party in more detail. This requires that the original contract be a valid one in existence, otherwise there would be nothing that requires rewriting.
• Contract Rescission — The original contract that was breached is now cancelled or rescinded. The parties may write a new contract that better details the requirements of both parties.
• Injunction — The judge can issue an injunction that requires one party to stop doing something specific because it is causing irreparable harm to the other party and monetary damages cannot replace or repair the issue.
• Constructive Trust — When a party wrongfully obtains the other party’s property and used it to increase the value of his or her own property.

Legal Remedies

In a breach of contract case, legal remedies can take several forms in the way of monetary compensation. These are compensation for damages sustained as a result of the contract breach. In addition, the court may issue reimbursement for various items like out-of-pocket costs associated with the breach, or in limited situations, a judge may award punitive damages to ensure the defendant ‘learns’ from their behavior.

For example, if you entered into a contract for 100 hours of work, but the client cancels during the course of the contract, then you have a breach of contract case for the income you lost by the cancellation. If you hire an agency to complete a project within a certain time frame and lose out on $5,000 because they didn’t complete their deliverables, you can sue for breach of contract.

Retaining a Washington DC Business Attorney

If you run a business, it’s important to have a Washington, DC business attorney who can provide advice and handle legal matters as they arise, including a breach of contract. Tobin O’Connor Concino P.C. has two decades of experience protecting the rights and interests of businesses in Washington DC. Contact us at 202-362-5900 to schedule a consultation.

Potential Advantages of an S Corporation

One of the biggest advantages of forming a corporation is the elimination of double taxation issues. With an S corporation, both profits and losses get passed on to the shareholders, and therefore, taxes are paid only once. Depending on the state you plan to operate in, S corporations may or may not be recognized, and could be taxed by the state as traditional C corporations, or some states may charge a state tax even though there is no federal tax being charged.

S corporation shareholders can work as employees and take their own salary. They can also receive distributions and dividends from the business that are tax free, up through the amount of their investment amount. Reasonable amounts for dividends and distributions can help provide a reduction in self-employment tax liability.

Another advantage is limited liability status with S corporations. Shareholders have protection against liability for the company’s liabilities and debts. Shareholders are only liable up to the amount is of their investment, and their personal assets are protected against the debts and liability of the business.

S corporations sell stock to raise capital and have an unlimited life, as ownership is defined by shareholders. In other words, it will continue to exist and remain in operation. The S corporation is not influenced by the death or departure of one individual director, owner, or founder.

Potential Disadvantages of an S Corporation

If you plan to do business in Washington D.C., note that the District does not recognize the federal S corporation status and there is no state-level S corporation election option. What this means is you can still have an S corporation, but it’s only an S corporation as far as federal taxes are concerned. For state taxes, the business will be treated like a traditional C corporation.

S corporations have strict restrictions on who can be a member. Members cannot be a non-US citizen, a corporation or another LLC. The strict membership is only a portion of the strict rules on S corporations. An S corp can’t have more than 100 shareholders and cannot issue more than one class of stock. Because there is only one class of stock, the business cannot allocate income or losses to certain shareholders, unlike an LLC that can allocate money however they set forth in their operating agreement.

The IRS pays closer attention to S corporations, especially because they can distribute dividends or a salary. The IRS wants to ensure the salary given to the shareholders is realistic and they aren’t just trying to reduce taxes.

Forming an S corporation takes a few extra steps versus a traditional C corporation. You start by filing for a traditional C corporation and then there are some additional requirements like annual reports and franchise tax fees in some states. S corporations are required to adopt a calendar year for taxes unless it can provide a valid reason it should be a fiscal year.

Washington DC Business Attorney

If you have questions on which business structure is right for you, it’s best to speak with a qualified Washington DC business attorney. The team at Tobin O’Connor Concino P.C. have years of experience helping businesses get started. Contact our office at 202-362-5900 to set up a consultation.