This article was written by Theresa Marangas, Esq., Meier Law Firm Senior Counsel.
A significant number of small businesses in NYS are created and operated as single or multimember LLCs. Although most LLCs cease to operate after one generation, there are ways to ensure that your business continues to thrive.
Your LLC is an integral part of our business community and economy. Data obtained by NYS confirms the following:
“….small businesses form a substantial portion of the New York State economy (2nd Quarter, 2021): 98 percent of New York businesses have fewer than 100 employees (the state’s definition of a small business); 92 percent have between 1 and 25 employees; and 80 percent have between 1 and 10 employees.
Looking at employment, over 39 percent of the workforce is employed in firms with fewer than 100 employees; 24 percent of the workforce is employed in firms with between 1 and 25 employees; and 14 percent of the workforce is employed in firms with between 1 and 10 employees”. (Source)
By the second quarter of 2021, 9.6% of small businesses with fewer than 100 employees were no longer viable. Hopefully, this brief discussion of mistakes to avoid will help your business take the necessary steps to reap future success.
Five Mistakes to Avoid
You don’t know what you don’t know. It is highly recommended that every LLC have an attorney as outside General Counsel, a certified public accountant, a financial advisor and an insurance agent that act as trusted advisors for the creation and ongoing operation of the LLC. All four trusted advisors should collaborate to reduce exposure to liability and help the business to flourish. Don’t be penny-wise and pound-foolish. At a minimum, annual check-ins with your trusted advisors are advisable. This “check-in” is separate from any regular/yearly guidance that is part of normal business operations.
Have An Estate Plan
Having key estate documents in place ensures that your membership in the LLC transfers to your heirs or that your interest is sold at a fair price. In conjunction with creating your individual estate plan, which may include a Will, a Power of Attorney, a Health Care Proxy and a Trust, every member of the LLC should participate in the creation of a succession plan to dictate how their interest will be transferred upon their death and whether the right of first refusal and/or a Buy-Sell Agreement is appropriate.
Update the Operating Agreement
The Operating Agreement drafted when you first formed the LLC may not appropriately address the current operation of your business. Also, you may be so busy running the business that you don’t recall the language in the Operating Agreement. Every member should review the Operating Agreement on a yearly basis and address potential amendments with the LLC’s attorney and accountant.
The purchase of a life insurance policy by the LLC for each member is an excellent tool to assist with adequate compensation to a deceased member’s loved ones. Also, the benefits may help with the smooth, continued operation of the LLC after the death of a member. The LLC’s attorney, financial advisor and insurance agent/broker should be involved in this decision and provided with copies of the policies.
Communication is Key
Whether you are the sole member or part of a multi-member LLC, communication with your fellow LLC members and/or your agent under a Power of Attorney is essential, as they need to know who will step into your role with the LLC if you are unable to act. Discussing potential scenarios before they arise gives everyone an opportunity to understand how to assist the business when unexpected events happen. Again, your team of trusted advisors can offer guidance as they will likely have addressed issues with other clients that hopefully can be avoided by your LLC.
As we are all well aware, unforeseen events happen, whether a pandemic or another triggering life event. A smart business owner embraces a mindset and creates a plan for the continued growth of their business under various circumstances.
The Meier Law Firm would be honored to serve as your outside General Counsel in creating and operating your LLC and addressing your estate planning needs too. To us, it’s not just business; it is personal.
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