Minimum Documentation Required: LLCs & Corporations
What is the minimum documentation requirement for each of these entities in order to give the business owner legal protection for their business and have the appropriate paperwork on file?
LLCs: The Napkin Contract
For LLCs, the requirements are simple. While some states require the company to keep an Operating Agreement on file (see list below), they can range in specificity required. There are relatively standard Operating Agreements that lay out all of the necessary provisions, so of course those provide more legal protection than something more informal; however, I advise clients who don’t want to go through the process of executing a fully fleshed out Operating Agreement to at minimum write down the following:
- Who are the owners of the company and what are their roles?
- How much money, time (i.e. sweat equity) or both are each of the owners going to contribute?
- Who is responsible for the day-to-day decisions of the company?
- Does any one owner get a “veto” rights over certain decisions based on their experience or amount of money invested?
- Which decisions must be unanimous among the members, and which can be made by majority vote?
- How do the owners want to resolve any disputes between them? For example, before running off to the court will they agree to some sort of required non-binding mediation first?
- How do the owners want to handle a situation where they “break up” and one owner wants to leave but another wants to stay?
This is not meant to be an exhaustive list, but at least it’s a start and covers some of the stickier subjects.
The main point: Even if you have to jot this stuff down on the back of a napkin with your business partners, do it and get everyone to sign it. I’m not saying this is the most legally-sound approach, or that it’s an adequate substitute for a fully thought-out legal agreement. It’s not. But it’s better than nothing. A lot better. You need something in writing to refer back to, however informal. Without at least writing this stuff down somewhere, you are exposing yourself to a lot of time and headache to have to backtrack later and determine who did what and who said what – and by the time you have to do that usually there is some dispute so emotions are running high and everyone’s memory will be more biased towards their own interests.
Per above, there are five states who actually require you to have an Operating Agreement in your files, even though you don’t have to file it directly with the state government. Those states are: Delaware, New York, California, Maine and Missouri.

Corporations: The Bells & Whistles
For corporations, the documentary requirements are more voluminous; basically, you need all the bells and whistles. Each corporation will need, at minimum, the following:
- Certificate of Incorporation, filed with the State, which lays out the number of shares and share type authorized and issued, as well as other details
- List of founding shareholders, Stock Purchase Agreements for each
- Resolutions electing both Directors and Officers, and activated other corporate start-up procedures
- Bylaws describing the governance procedures for the Directors and Officers and Shareholders (note: most states require you to have this document in your files)
- Meeting minutes for each meeting, kept on file by the company’s Secretary
- In the event there are multiple classes of Shareholders and based on increased complexity, more documents are needed such as Voting Agreements and Investor Rights Agreements
All of these documents are required upfront in order for the corporation to be legally recognized and ready to start business. Unlike with an LLC, there are no cutting corners here. No napkin contracts allowed.
In summary, if you are looking to put together something quick-and-dirty just to get the business started and don’t want to go through the corporate formalities at the outset, the simplest path is creating an LLC with a short-form operating agreement which can be improved later. Plus, in most cases you can convert from LLC to corporation in the future if needed, so you can always modify your set-up in the future so long as the proper procedures are followed. There is, however, one key point to remember when choosing between LLC and corporation: if you are intending to raise venture capital or angel investor money early on, it’s probably best to choose a c-corporation formed in Delaware. Those types of investors tend to prefer that set-up, mostly for tax and corporate governance reasons.
Finally, an important point: in the event that there are even numbers of people towards the bottom levels of the pyramid (see Part 3), I highly advise against splitting up voting power evenly. Even splits are dangerous and require some extra provisions in the paperwork to overcome deadlock. Especially when there are 2 or 4 partners, business owners often say “let’s just split everything 50/50” or “25/25/25/25”. This is almost always a mistake.
The problem with this of course is what happens when you have a dispute. If you do decide to split up voting power equally then, at minimum, you should insert a deadlock provision into your paperwork – something that spells out what you’ll do when you lock horns and can’t agree on something. We aren’t talking about day-to-day decisions here as much as major company decisions. This isn’t about what color the carpet is going to be in the office, this is about whether to take a big loan out from the bank, or whether to sign a big installment contract with your biggest supplier that requires some huge upfront payment – that sort of thing.
Timing is also an issue. You don’t want to deadlock when you’re in the heat of battle and have to stop focusing on operations in order to figure out your differences. A common approach to resolving a deadlock is to designate a third party mediator, someone with a track record in your business sector who can provide some objectivity to your dispute and help you find middle ground. It sounds nice in theory but in practice it can take too much time, slow everything down, and still may not lead to a resolution. If one partner ultimately disagrees with the final decision of the mediator, they can still “appeal” and go to court to argue why they should get their way. All in all, it can get messy. So while I’m not saying that even splits aren’t appropriate sometimes, don’t just assume that you’ll “always be able to agree” with your partner over everything. It’s short-sighted and I’ve seen it go the wrong way more often than not.
In the next post, we’ll turn our sights to the finance department. What’s a lawyer doing talking about finance? Surprisingly, the financial set-up of your company doesn’t just impact your bottom line, it has a lot of legal implications as well.
De-Risk Your Biz: Minimum Small Business Legal Requirements
- Part 1: Introduction
- Part 2: Penny Wise & Pound Foolish – A True Story
- Part 3: Company Set-Up Basics
- Part 4: Minimum Company Set-Up Documentation Required
- Part 5: Finance Department – The Three-Headed Monster
- Part 6: Intellectual Property – The Four Buckets
- Part 7: Intellectual Property – Registration & Titling
- Part 8: Small Business Licensing & Insurance: Quick Overview
- Part 9: Wrap-Up