After you create a legal entity by either incorporating (C or S corporations) or forming an LLC, it’s important to know what to do next. Some states have extra requirements after you’ve completed all of the paperwork for your legal entity to become activated, and depending on the type of legal entity you chose you’ll want to make sure you’ve setup your bylaws or operating agreement. 

Regardless of where your business is located, it’s important to know how to start operating with your new entity at the front of your processes. Registering your business with a trusted partner can take away the worry that often comes with the laws and requirements being different in every state. However, below we’ll briefly cover the things to think about when you’re registering your business by yourself. 

What Every Business Should Do After Legal Formation

After you’ve completed all of the paperwork and filed it with your state, both corporations and LLC have a few similar steps that everyone needs to think about. Next, we list out the ones that every single business should keep in mind as you start operating under your new legal entity. 

Open a Business Bank Account

One of the best protections a legal entity can provide you personally, as the business owner, is the separation of business assets and personal assets. This financially helps keep you and your personal property safe from any poor business performance. In order to fully protect your personal assets, you’ll need to make sure that your finances aren’t mixed with your business finances at all. 

Creating a business bank account allows you to easily pay your bills and know how much cash your business has on hand at any given time. It’s a good idea to immediately open a business bank account as soon as you have all of the legally required paperwork. This includes both the registration of your business with your state and typically your federal employer ID number. 

Obtain Your Federal Employer Identification Number (FEIN)

Your federal employer identification number, or your federal tax identification number, is a unique nine digit number given to you by the IRS. This gives the government an opportunity to know who you are when you pay taxes and pay your employees. This is a requirement to obtain if you have and pay any employees at all, including yourself (unless you pay yourself only through profit distributions). 

You can apply online through the IRS website, via fax, or by mail. If you’re an international business owner you can apply via telephone during specific times. The responsible party for each business looking to obtain a FEIN must be an individual and not another legal business entity. 

Setup Business Payroll

If you have employees, you should setup your business payroll quickly upon receiving your federal employer identification number. You don’t want to get behind paying employees and you also don’t want to personally pay anyone out of your own account once you’ve incorporated or filed the paperwork for your LLC. You don’t want to give any reason to believe your personal and business assets should be mixed together. 

Setting up business payroll can be done a number of different ways but we recommend finding a software that you like and using it to help you through the process. Various software products will do all the payroll calculations and tax filings on your behalf so that you don’t have to add another headache to your business operations. 

Notify All Business Partners of Your Legal Entity Change

If you’ve been operating under a partnership then you’ll need to make sure every single partner receives written notification of the change of your business’s legal status. This should include copies of all the paperwork, showing exactly what it means for each partner and how much of the new business everyone owns. 

Start Operating Your Business

Now that you’ve legally formed your business, it’s time to start operating with your legal name or DBA (a name you’ve registered with your state for “doing business as”)! All of your practices moving forward should take into account the fact that you’ve now registered your business. 

This will mean something different for every business but outside of the clear financial changes (such as operating from a business bank account), your business may need to change the name you’re using on all communications. Your state may have unique rules that you’ll need to be aware of before operating your business so that you stay compliant, so it’s likely best to check with an attorney or a partner who specializes in business formations.

What to Do After Incorporating

If you’ve formed an S or C corporation, then your requirements after you incorporate differ slightly from other business types. The things that these types of businesses will need to do after they file include: 

• Review Incorporation Documents: Make sure everything you’ve filed was inputted and filed correctly. You don’t want to rely on information that wasn’t included in your incorporation documents. 
• Make Sure You’ve Completed All Steps: Some states might require additional steps to make your incorporation complete. Make sure you fully understand what those requirements are, or if your state even has any. 
• Create a Corporate Minute Book: Keeping meticulous records will be very important for your business moving forward. This starts with keeping minutes of each board meeting, which can be kept inside of your new corporate minute book. 
• Hold an Organizational Meeting: You need to hold your first organization meeting to formally announce the business structure and to adopt bylaws, which is an important step to finalize your incorporation.
• Adopt Bylaws: Adopting bylaws by which the business will operate is a legal requirement for all corporations. These will become important as the business operates moving forward and none of these should be taken lightly. 
• Issue Shares of Stock: Ownership in corporations is given via the issuance of shares of stock. When you incorporate you need to decide how many shares the business has (you can create more in the future) and who owns how many shares, based on the percentage of ownership each person or entity has in the business. 

What to Do After Forming Your LLC

Forming an LLC is a bit different than incorporating. If you’ve created an LLC, then it’s important to do these things after you’ve finalized the paperwork with your secretary of state’s office: 

• Review LLC Documents: This is similar to incorporating, but you need to make sure that all of your paperwork was completed correctly and that you understand what it all means. 
• Make Sure You’ve Completed All Requirements: When you form an LLC your state may have requirements to finalize your formation and make it legally valid. For example, some states require you to make a public post in a local newspaper that your business has been formed. Make sure you fully read your state’s requirements after you form your LLC to make sure you’ve abided by all requirements. 
• Create an LLC Minute Book: Formally documenting everything that happens in your business, or at least your big decisions, will be important moving forward. This is especially important if your business has multiple owners. The difference from a corporation is that LLC’s are not legally required to hold annual meetings and keep minutes. It’s still a good idea to organize the decisions of the business though. 
• Hold an Organizational Meeting: Every new business should have an initial meeting to layout the organizational structure of the business. For an LLC, this is a good time to adopt an operating agreement. 
• Adopt an Operating Agreement: Most LLCs will be required to draft and execute an operating agreement which the business will live by. Check out our article to understand the differences between an operating agreement and corporate bylaws. 

This is a pretty inclusive list of all the things you should be thinking about to either finalize the formation of your business or to start operating after your legal paperwork is complete. Using a service, like ours, takes a lot of this out of your mind because we provide the information and packages necessary to get all of the requirements out of the way. Register your business with us today and we’ll provide the peace of mind that your work is being fully completed!

Frequently Asked Questions After Incorporating or Forming an LLC

You may have more specific questions about whether or not you should do something after incorporating or forming your LLC. We’ve put together a nice list that’s inclusive of pretty much anything that you might be thinking about, which is relative to this type of activity. Check out our frequently asked questions if you don’t see the answer you’re looking for in this article.

Below is an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here.

Communication can be seen as a way for you to get results, connect with your team, and make sure everyone is one the same page and rowing in the same direction. Good communication skills are critical to a startup; those who cannot communicate quickly, clearly, simply, and effectively will be at a massive disadvantage. A lot of companies are starting to realize that good communication skills, especially written (which is very important in the age of digital and remote communication), is one of the top indicators of an employee’s success. I believe good communication skills are even more important for founders. 

Why is communication important? You might have the clearest vision, solution, expectations, or insight in the world, but if you can’t communicate that to others (customers, employees, vendors, bankers, etc.) then you can’t persuade them to follow you, to understand your point, or why they’re even showing up for work everyday. 

Also, as your company adds people, the complexity of communication explodes exponentially. The book Scaling Up by Verne Harnish discusses this: 

“Think back to when your company was just the founder and an assistant with a plan on the back of a napkin. This start-up situation represents two channels of communication (degrees of complexity), and anyone in a relationship knows that is hard enough. Add a third person (or customer or location or product), and the degree of complexity triples from two to six. Add a fourth, and it quadruples to 24.

Expanding from three to four people grows the team only 33%, yet complexity may increase 400%. And the complexity just keeps growing exponentially. It’s why many business owners often long for the day when the company was just them and an assistant selling a single service.”

If there’s one thing you can expect from a successful CEO (and his or her managers) it’s that they focus on a very few things and tend to say the same things over and over. This is not because they’re boring or close-minded, it’s because they know that they need to repeat these things over and over so they become part of the culture of the company and gets everyone rowing in the same direction, especially as communication gets more complex. 

Communicating things like the company vision and goals, the company values, and the best practices over and over is how you get these things in the DNA of everyone working with you, and it’s effective. It’s why your parents likely said the same things over and over as well and why you can probably quote many of those from memory. 

Finally, a good founder will detect when communications are bad or are going badly (perhaps in a confrontation among your team) and step in to improve the situation or call a time-out for consideration at a later time when things are calmer. 

Writing Skills

Communication skills, especially reading and writing, are becoming more and more valuable for many reasons. Most of our communication is written, more now than ever, even in text messages and chats. It’s also expensive and a huge time waste to have to repeat or clarify yourself and to answer the same questions over and over. If you’ve ever been on an email thread, chat, or text with someone who just “doesn’t get it,” you know how frustrating and wasteful this can be. 

While it solves many quick issues, try to avoid your instinct to pick up the phone so you can develop your written skills. Improving your writing is usually a simple matter of increasing the volume of your writing. Tell your team to put things in writing so they can clarify their ideas and thinking. Writing is so powerful that writing this book actually greatly clarified and simplified many systems I already had in place. Read that again. I’ll provide some helpful information on this in the Chapter Resources. 

Persuasion

There are very few founders who would deny that being persuasive is a great skill to have. Every great salesperson is persuasive, and while it’s not fair, all things being equal, if there are two people competing, the person with the best persuasion skills will get the contract, the sale, the partnership, or even the date. If you’re persuasive, you can probably sell something even before it exists. This is a big part of selling your idea to others, and we’ll revisit this in Step 4. People underestimate the power of persuasion, in my opinion. 

Style and Tone

Electronic communication and social media have been both a blessing and a curse. While these new ways of quickly communicating and connecting have brought about many great things, one thing that has definitely fallen on the wayside is the subtlety of face-to-face and even phone conversations. Here’s an example from Cameron Herold in his book Double Double:

“I didn’t say you were beautiful.” 

Now, I have no idea how you read that in your mind but there are many ways to interpret this text, and it usually depends on the mood of the person reading it. Now, re-read it, but put the emphasis on a different word each time. Example: “I didn’t say you were beautiful” has a much different vibe than “I didn’t say you were beautiful”. 

People will read things in their mood (they may be having a terrible day) and misinterpret even simple sentences, so it’s important to review your communications for tone and how they may be perceived. It’s not what you say; it’s how you say it. 

It still amazes me how short or rude some people communicate these days (even employees); it’s killing your chance at getting what you want (for example, a promotion). At the very least, use basic “please” and “thank you” etiquette every time in written communication to make sure nothing is misunderstood. People have been fired or lost friends for less, believe me; style and tone are important.  

Finally, you as a founder have to set the example and make sure the communications themselves are not overwhelmingly negative to begin with. For example, if you find out your team is not following a clearly written rule or procedure, there are a couple of ways to inform them:

1. You can do an in-person or phone meeting and rip their heads off. The point will be taken and perhaps will stick, but since there’s no written record of it, you can’t reference it again, and your team is probably either scared or mad now, making things worse. They were probably so terrified that most of the message was lost. It wasn’t written, so it’ll likely be forgotten in a week or two, and there’s no record to refer to later. 
2. You can do an in-person or phone meeting and be incredibly nice and gracious. The point will be taken and perhaps will stick, but since there’s no written record of it, you can’t reference it again. Your team may or may not change their behavior, but who cares because you heard one thing and somebody heard something else. Search online for “Yanni vs Laurel” to see what I mean about people hearing different things from the exact same sounds.  
3. You can write the team an email or memo that says, “Hey, geniuses, nobody’s following the XYZ procedure, and I’ve told you like ten times about this. Anyone not following procedure going forward will be terminated.” The point will be taken, and there’s now a nicely written record of you informing everyone (which is good, meaning you can reference it later if the behavior has not changed), but the tone will probably just terrify everyone and likely be counterproductive. 
4. You can write the team an email or memo that says, “Team, we’re having some issues with the XYZ procedure not being followed, and it’s creating problems both for us and our clients. The procedure is attached to this email, and we’ll discuss at our next team meeting. Please be prepared for questions.” This is a) in writing for accountability b) clear and short, explains why the procedure is important c) puts the responsibility on the employee for reading the procedure d) subtly warns that they had better read it and be prepared because we’re discussing it at the next meeting (but does not berate them). That’s when the in-person component will be the most well received and effective. 

Now, Option 4 above doesn’t always work, and that’s when a formal written warning and perhaps even anger may be appropriate. The main point is that effective communicators have a clear, direct, but usually friendly style about them, and this seems to get better results overall. 

Improving Communication Skills

Everybody has their own particular style or preferred method of communicating, and they all can be made effective. Here’s what I’ve learned are the best ways to improve your communication skills. Note that this is always a work in progress (I’ve made huge mistakes on this front), and the key is to keep improving. I know some great CEOs who can communicate in one sentence what can take others a paragraph. That’s a sign of a great communicator. 

1. Same picture in everyone’s head. If I’ve learned anything over many years, it’s that what you know and how you think can be completely different from what your team knows and thinks. Something might be crystal clear to you, and your employees may even say it’s clear to them, but in reality, they have a completely different vision of the concept, idea, project, or task in their head. Knowing this should reinforce how important it is that you make absolutely sure that everyone has the same picture in their head and are talking about the same thing. A good way to do this is to make someone repeat back their interpretation of what is being communicated. 
2. Listen more than you speak. Founders tend to be fast-moving and many have little patience for too much “conversation over action.” Try to overcome this tendency and make sure to listen carefully to people, especially your customers and team. Often, your customers or team won’t speak up unless heavily encouraged (especially introverted employees), so always ask for feedback and for any questions they might have. 
3. Keep it short and simple. The best communicators keep it short and simple for easy understanding by your intended audience, especially in business writing. Remove unnecessary words and information. Don’t overwhelm people with information that is not actionable right away. 
4. Focus on clarity. Ask yourself, “What am I trying to say?” and work from there. 
5. Repetition until it hurts. Your vision, one-sentence strategy, values, principles, best practices, and goals should all be so familiar to your team that they could repeat it word for word. At Amazon, they call these “Jeffisms” because CEO Jeff Bezos endlessly repeats them. 
6. Watch style and tone. As discussed earlier, style and tone can be massively misinterpreted and it’s important to monitor. Light and friendly is best: thanks, no problem, we’ll take care of it, thank you very much, glad to help, sorry, my fault, etc.
7. Be the example and set expectations. If you’re an effective communicator and use proper style and tone, this will filter through your company. Set expectations: If you don’t expect a reply to your emails on weekends, let the team know that. I work best late at night, and everyone knows I don’t expect a reply until their working hours. I’ll call or text if something is urgent. 
8. Over-communicate at first. When starting out a new company, a new job, a new idea, or simply implementing a new policy, lean toward over-communicating so you know the message or ideas are received. You can tweak things later based on feedback or intuition, but this is way better than under-communicating. The billion-dollar merchant account company Stripe requires all their employees to CC a group email address for all internal communications so communication is out in the open and searchable. Employees then learn over time which conversations should be actively monitored or reviewed later.
9. Write things down. As we’ll go over later, writing things down, especially procedures, policies, and FAQs, is a great skill to acquire. There are a lot of “tele-philes” and “in-person conversation” junkies who love to talk all day or use the phone (usually as a crutch for poor written skills), but if you don’t have it written down, there’s no accountability, and you’ll have to repeat yourself over and over until the end of time. Make your team write things down for accountability, and be suspicious of those who resist this. Even an email can be referenced easily. 
10. Make written things discoverable. You’re not a mind-reader and neither is your team or customers. If you get asked the same question more than a few times, then it’s time to put things in writing and post them where they can be easily found. We use an intranet and Google Docs (all searchable) for teams and a thorough, searchable FAQ for our clients on our website. Tip: Have your team set their browsers to an intranet page and post memos, notices, and announcements there instead of email. This keeps announcements “front and center” and unclogs email inboxes.
11. Systemize to reduce unnecessary communication. Jeff Bezos said, “Communication is a sign of dysfunction. It means people aren’t working together in a close, organic way. We should be trying to figure out a way for teams to communicate less with each other, not more.” This may sound counterintuitive, but this is an important point in the world of email, text messages, and constant chat. Too much communication and interruption can massively disrupt workflow and Real Work throughout the organization. It’s important to have clear systems and procedures to handle the never-ending flow of basic questions, clarifications, and expectations of how things work. Writing things down and making them easily discoverable will help reduce the volume of communication and is one reason why they’re critical to a well-functioning business. 
12. Use a daily huddle. You can write things down and be more effective at communication, but this doesn’t stop interruptions throughout the day. The daily huddle is a good solution to this problem. It’s a quick 5–10 minute team meeting (1 minute per person, do a separate meeting for each team) in the morning for everyone to report what they’re working on, and if they’re stuck, have questions on their work for the day, etc. Done properly, this should massively reduce interruptions and issues through the day. 
13. Use communication channel best practices. Not all communication channels are appropriate or ideal for every situation. Learn how your business functions best. Some examples:
    • Chat = Urgent; should last only a few minutes, otherwise the concept is too complex and switch to phones 
    • Email = 2–24 hours (not weekends; use phone/text if something requires weekend interruption). If you need a reply sooner or before close of business, ping via chat.
    • Phone = complex thing easier discussed live, but ping somebody or schedule the call, don’t just interrupt 
    • Urgent/personal to an individual = phone/in-person
    • Urgent to the team = chat via the main or “general” channel
    • Intranet  = not urgent but important for all to see and reminders of memos and updates 
    • Meetings = In-person or video 
14. Use abbreviations and acronyms. One way to speed up communication in your organization dramatically is to abbreviate and shorten long or complex concepts and phrases (this especially helps for speeding up written communication). For example, in my company, our customer management system called “Business Entity Management Application” is just BEMA, “Ready to Process” is RTP, “Turnaround Time” is TAT, etc.   
15. Learn persuasion skills. I’ve never heard someone say they regret getting basic conversation and sales skills, especially a founder. Basic persuasion and sales skills will serve you well throughout life, and are incredibly easy to learn. 
16. Encourage good communication from your team. Coach and help your team improve their communication as well. A poor communicator is almost always a poor-performing employee. If you have to repeatedly ask them to communicate something to others or clarify why they didn’t communicate something properly, then you probably need to start planning for their replacement. 
17. Manage bad communication. Inevitably, there will be a fight, argument, or worse that will require your intervention. Make sure to intervene and de-escalate as quickly as possible. Try to resolve things amicably and get to the root of the problem. 
18. Use righteous anger when necessary. Mostly used as a last resort (and often misused by many as a first resort), and provided you’re doing most of the things above, sometimes people are just not getting the point or understanding the importance of something or are overstepping their authority and righteous anger is justified. “This is not our focus right now” may be ignored but “This is not the fucking focus right now, drop it” conveys a different level of importance. Used sparingly, it can be effective.

This was an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here or see our previous excerpts here.

By Vance Cariaga

A critical step in getting your restaurant up and running is choosing its legal structure. You basically have four choices here —  a sole proprietorship, a partnership, a limited liability company (LLC), and a corporation — though there are variations within each.

Many restaurants start out as sole proprietorships, which means the owners operate as individuals with no separation between personal and business finances. Partnerships are similar, with the main difference being that each partner is liable for the debts and obligations of all the other partners.

No formal action is needed to form a sole proprietorship, according to the Small Business Association (SBA). If you’re the sole owner, you become a sole proprietorship just by conducting business. Even so, you’ll need to obtain all relevant permits and licenses to operate. Contact your state’s Secretary of State office for more information.

No formal action or paperwork is needed to form a partnership, either. You can create one simply by agreeing to go into business with someone else, according to the Nolo legal website. There are a few steps you’ll want to take before proceeding, however. These usually involve choosing a restaurant name, creating and signing a partnership agreement, obtaining licenses and permits and getting an EIN.

Advantages of Incorporating Your Restaurant Business

Even though it’s simpler to form a sole proprietorship or partnership, it’s usually advisable to form a corporation or LLC. That’s because you can separate and protect your personal assets from your business assets and keep from being liable for a partner’s debts. Corporations also get tax advantages not granted to other types of entities.

A good initial step is to decide what kind of company you want to form for your restaurant. Here are the most common types:

• LLC: An LLC is considered a “pass-through” entity, meaning its profits and losses pass through to the owners. It is formed by one or more individuals or entities through a written agreement that details the company’s organizational structure, including management provisions and how profits and losses are distributed.
• C-Corporation: A C-Corp is allowed an unlimited number of shareholders, all of whom are protected from the corporation’s liabilities. C-Corps are taxed on their profits, while shareholders are taxed on the distributions they receive.
• S-Corporation: S-Corps cannot have more than 100 shareholders and can only issue a single class of stock. An S-Corporation’s profits and losses are distributed to shareholders based on each shareholder’s interest in the business. To qualify as an S-Corp, you’ll need to file Form 2553 with the IRS.

When you’ve decided what type of corporation you want to form for your restaurant, you’ll usually take some or all of the following steps:

1. Appoint members or directors.
2. Establish bylaws that outline the corporation’s operating rules
3. File articles of incorporation or organization.
4. Issue stock certificates to shareholders.
5. Obtain relevant licenses and permits.

Required Documents for Incorporating a Restaurant Business

Forming a corporation for your restaurant also requires filing various incorporation and financial documents, including those listed below. Just keep in mind that different states have different guidelines, so always consult your state’s Secretary of State office to learn more.

• Articles of Organization (LLCs only): These are required to establish your restaurant business with the Secretary of State. The information you’ll provide here includes the business name, principal street and mailing addresses and the names and address of the person or persons forming the LLC.
• Articles of Incorporation (corporations): These are similar to articles of organization. The data you’ll provide here includes the corporation name, its principal place of business, the name and address of the registered agent, the statement of purpose and the number of shares and stock classes the corporation is authorized to issue.
• Operating Agreement (LLCs): This agreement sets rules for the ownership and operation of the restaurant business. It should include info on members’ percentage interests in the business, members’ voting power and rights and responsibilities, how profits and losses will be allocated, how to amend rules and how the restaurant will be managed.
• Company Bylaws (corporations): Bylaws are used to document how various parties — including shareholders, officers and directors — will oversee the organization and its operations. Among other things, bylaws should include the corporation’s name, address and principal place of business; the names and types of officers and directors; procedures for amending and adding bylaws; procedures for shareholder, board and annual meetings; and the types and number of stock classes offered.
• Shareholders’ Agreement: This is used by stock-issuing corporations and serves as a legal doc that outlines shareholder rights as well as the duties and powers of management and board members. You should also include rules for issuing new shares, rules governing conflicts of interest and guidelines on how to resolve disputes.
• Stock Certificates: Again, these are only necessary for corporations that issue stock. They should include the corporation’s name, the date shares were issued, the signature of the authorizing entity and the company seal.
• Annual Report: In most states, both LLCs and corporations are required to file an annual report with the Secretary of State’s office. This can usually be done online on the state’s website and comes with a fee. The required information typically includes the company name and address, the names and addresses of directors and officers, the Tax ID number, the business purpose, authorized signatures of registered agents and the number of stock shares issued.

The Bottom Line

Every business is unique and has its own goals and priorities. As the restaurant owner, only you can decide which business entity is best for your business. Make sure to review all options and gain a thorough understanding of the tax implications of each so you can choose the right business entity before you open your restaurant. 

——————————————————————————————————————–

Author Bio

Vance Cariaga is an award-winning writer, editor and journalist. As a journalist he held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. His reporting earned awards from the North Carolina Working Press Association, the Green Eyeshade Awards and AlterNet. Vance’s collection of short stories, Money, Love and Blood, includes “A Slight Difference of Opinion,” winner of the 2015 Creative Loafing Flash Fiction contest. Another short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. In addition to journalism, Vance has worked in accounting and restaurant management. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina.

An operating agreement is used by limited liability companies (LLC) to establish the operations of the business. An operating agreement for an LLC is very similar to by-laws that are used by legal corporations. Within the operating agreement is typically the terms agreed to by members of the LLC, including both day-to-day operating procedures as well as special circumstances. 

If you’re ready to complete and file your LLC paperwork then you should also make sure you’re drafting an operating agreement to outline the rules for members of the LLC. This can protect your liability and make sure all members are on the same page with operating procedures and bound to them legally. My Company Works offers same-day LLC filing and we’ll provide you with an operating agreement for your state as a one-stop-shop. 

What is an Operating Agreement Used For? 

An operating agreement is a legally binding document used by members of an LLC to outline contingencies with their legal relationship within the business. Without an operating agreement then the owners of an LLC would be leaving to chance how a court wants to handle any potential future dispute amongst themselves. 

If you have an LLC then it’s important to draft an operating agreement at the time of business formation. It’s not a legal requirement, in most states, for an LLC to have an operating agreement but it is recommended by many legal experts so that your business operations are protected for your needs. 

Every operating agreement is typically different because each business has different owners with unique circumstances and relationships. It’s important for some to have procedures in place for taking on money in the future while it’s important for others to establish what happens if one of the members of the LLC gets a divorce. 

How to Prepare an Operating Agreement

An operating agreement is a business contract so it’s drafted similarly to any other one. While your articles of incorporation are required to be filed with your state, an operating agreement is not. The operating agreement is optional in many states and rules for these agreements could vary based on the state you incorporate in. You’ll want to partner with a company that is experienced in drafting these within your state, or a local attorney, to make sure you’re creating an operating agreement that benefits your needs. 

The operating agreement should contain information about your company and its members. The agreement should include all the information that you find needs to be spelled out in how the various LLC members and manager(s) work and interact together. There might also be some specific laws in your state that you’d like to moderate for your business by including different rules in your operating agreement. Some of the most common terms included in operating agreements are discussed below. 

Terms to Include in Your Operating Agreement

Your operating agreement, and the terms it contains, should be unique to you and your business. You should also include terms that will allow your business to operate differently than any state rules that don’t work for your business. For example, some states require all profits to be distributed equally, unless otherwise stated in your operating agreement. 

With those considerations, here’s a list of some of the most common terms you’ll want to think about including inside your LLC’s operating agreement: 

• Equity Structure & Membership Interest: Who owns the business and, typically, what percentage of the business does each LLC member own? The membership interest can be broken up into two different components: the economic interest and management interest. Technically someone who owns more management interest in the business could have full control of decision-making even if someone else owns more of an equity interest, though this typically isn’t the case.
  
• Rules for Allocation of Profits: There are basic rules for the allocation of profits, which is typically the rule that all profits are distributed evenly based on the percentage of ownership. However, you could alter this rule by coming up with your own within the operating agreement.
  
• Management Structure: With an LLC you can set it up where it’s managed by members of the LLC (owners) or by a manager. If you’re setting it up to be run by a manager then you would need to define how that relationship will work within this section of the operating agreement so that everyone is on the same page.
  
• Transferability: This section of the operating agreement will define the rights and restrictions of LLC members to transfer their rights and ownership. You may enact veto rights by the other members in case a single member is trying to sell a large interest to an outside party that the rest of the members don’t want to operate with. You could also enact a right of first refusal in the event of a potential sale to allow the other members to potentially purchase the ownership interest instead of a sale to a third party.
  
• Buyout: This clause in the agreement would outline the rules behind certain buyout situations. For example, if a member of the LLC dies, divorces, or files for bankruptcy. The rules could stipulate that the company buys back the membership interest in any of those circumstances so that the other members don’t have to deal with an unexpected party.
  
• Dissolution: This stipulates the circumstances of how the LLC can be dissolved, typically by unanimous or a majority vote of the members.
  
• Records: This provision will dictate how and what records should be kept for the company, and often how long the records should be held. The most important part is to specifically point out the most important records that must be up to date at any given time.
  
• Forbidden Acts: This is an interesting provision that can actually restrict the members or managers of an LLC from specific acts, such as ones that would prevent the business from operating. Generally the punishment for these acts will also be spelled out, such as an involuntary withdrawal from being a member of the LLC. 

These rules are not a catch-all for what is included in all operating agreements but it should give you a good idea of what needs to go in yours. If you’re still not sure then you should contact legal counsel or an experienced company that helps business register LLCs. 

When is an Operating Agreement Required? 

The requirements for operating agreements vary greatly by state. Many states don’t require you to create an operating agreement when you register your LLC, but some do. For example, Alabama, California, and Ohio all require you to have an operating agreement if your LLC has more than a single member. This is contrary to other states like Colorado and Connecticut that require an operating agreement for single-member LLCs. If you’re not sure which state to incorporate in, these are the types of things you should be thinking about. Consider our guide on where to form an LLC. 

The best action for any LLC is typically to have an operating agreement in effect. If you choose not to draft and execute an operating agreement then your business will be at the mercy of the state operating laws. This isn’t an ideal situation because you won’t be able to clearly define the operating procedures that are important to you and your business. 

You may even want to have an operating agreement if you’re the only member of your LLC. Establishing an LLC and including an operating agreement with specific business operating procedures should fully establish your business from being a sole proprietorship and help you further separate your personal and business legal liability. 

Register Your LLC & Get an Operating Agreement

Even if your state doesn’t require you to have an operating agreement, it’s a best practice to create one when you register your LLC. This is to make it clear how the operating procedures work within your business, even if you’re just a single-member LLC for now. Operating agreements can help protect your business from unfavorable laws or yourself by providing a shield of liability that the courts recognize. When you register your LLC at MyCompanyWorks, you’ll get an operating agreement for your state! 

If you’re reading this then you’re either interested in starting your business, or you’ve started one already but found that you built yourself a job, not a business.

You might have read books and articles about genius entrepreneurs building multi-billion dollar businesses, going public with an IPO, and escaping off into the sunset. 

But that’s not you. 

Instead, you want to build a business so your wife can stop working.

Maybe you want a business that gives you time to spend with your kids.

Maybe you’re just tired of your day job and want to build something on the side that gives you more fulfillment.

You’re in luck. 

The books in this article will teach you to think like an MBA, even if you’ve never taken a business class in your life. You’ll learn how to start, market, and scale a business, even if you’re still working a day job. And most importantly, you’ll learn about different kinds of business that others have already built so you have a roadmap for your own journey.

Let’s get into it.

The Foundation of a Successful Small Business

1. The Four Steps to the Epiphany by Steve Blank

This is the best step-by-step startup book you can read. The book organizes the beginning stages of building a business. It talks about knowing your values, being market-driven, focusing on customer development versus product development, and how to go mainstream by making products for early adopters first.

2. Great by Choice by Jim Collins

This book tackles the question of, “Are successful companies just lucky or are there replicable patterns they follow?” 

Centered around the tenets of discipline, calibrated creativity, and a healthy sense of paranoia, the book teaches you how to create a foundation for your business that will let it thrive amidst uncertain environments.

3. Good to Great by Jim Collins

If you’ve ever wondered what separates good companies from the ones that are truly great, then this book holds the answers. Concepts in the book, like the Hedgehog Concept and the Flywheel, show you the qualities and mindsets you need to cultivate in yourself and in your employees to build a company that lasts.

4. Purple Cow by Seth Godin

This book is about how you and your business can stand out… And how to handle the risk that comes with being different. You’ll learn about creating remarkable products and services, and identifying the first few customer-slash-evangelists who will excitedly tell the world about your business

How to Start a Successful Small Business

5. The Personal MBA by Josh Kaufman

You should read this book if you think you need an MBA to build a successful business (spoiler alert: you don’t). You’ll learn to ask the hard questions that will help you make the right decisions so your business succeeds. You’ll build a framework for business decisions like getting outside funding, vision, marketing, negotiation, and collaboration.

6. The E-Myth Revisited by Michael Gerber

Coupled with The Personal MBA, this book is for anyone who is great at what they do and now wants to build a business around that expertise. You’ll learn about the nitty-gritty operations side of the business: how to plan for growth from day one, what to put in place so that you’re building a business and not a job for yourself, and how to (eventually) find and train people to run your business for you.

7. The 4-Hour Workweek by Tim Ferriss

If you want to build a business and not another job for yourself, then you need to be intentional about this from the beginning. This book will teach you how to redefine why and how you work, help you eliminate as much busy-work from your plate as possible, and prepare yourself for entrepreneurship — even if you’re still at your day job.

8. The Lean Startup by Eric Ries

Building a successful business is simple but difficult. It’s not about how fast you grow. It’s not even just about how much revenue you make. Instead, it’s about finding a profitable business model that can stand the test of time. 

In this book, you’ll learn the right and wrong reasons to start a business. You’ll learn how to test to make sure your business idea is profitable before you release your product. And you’ll also learn how to bake marketing into your product so that it sells itself. 

9. Zero to One by Peter Thiel

The most difficult stage of building a business is taking it from 0 sales and customers to the first ones. That’s much harder than going from 1 to 2. In this book, you’ll learn why successful founders tend to be weird oddballs, the sequence you need to follow if you want mass-market success, and the 7 crucial questions you need to ask yourself before you start your business.

How to Find Your First Customers for Your Small Business

10. This Is Marketing by Seth Godin

This is the best high-level marketing book you can read. Good marketing is about painting a story about how your business can help your customer improve their life. And This is Marketing gives you a framework for the marketing strategies and tactics that you’ll learn in other books.

11. Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne

Stop trying to be better. Just try to be different.  This is the main premise of this book — and it’s the most important positioning concept you need to learn in a world of commodities and choice. The book teaches you to be different, to carve out category or niche (blue ocean) and to stop seeking out crowded markets (red oceans).

12. Tribes by Seth Godin

The health of your business is dependent on the audience or tribe you built around the change you’re trying to make. Tribes is a short book that goes into detail on how communities start and thrive, and how you can start, nurture, and build a tribe around your work.

13. Show Your Work! by Austin Kleon

If you subscribe to the “build it and they will come” model of marketing, then you’re in for a rude awakening. These days, your marketing needs to start as soon as (or even before) you build your product. This book shows you how you can start documenting the process of building your business… So that when you finally launch, you won’t launch to crickets; you’ll have people who are eager to buy.

14. Traction by Gabriel Weinberg and Justin Mares

If you want a systematic way to grow customer demand as early as possible, then you need to read this book. It runs you through the 20 possible channels you can take to find customers, and with ‘The Bullseye Method’, teaches you how to systematically test each one until you find the ones that give you the most bang for your buck.

How to Grow and Scale Your Small Business

15. Company of One by Paul Jarvis

This book is about perspective and priorities — how “successful” doesn’t have to mean big, and how ‘“staying small” might actually be a better definition of success for your business. You’ll learn to focus on the people who are working in the business (for a small business, that’s probably just you) and the two things you should emphasize to build a successful small business.

16. Small Giants by Bo Burlingham

This book is for business owners who want to keep control of their company. You’ll learn why staying private might be a good idea in this time of high growth, IPOs, and unicorns. You’ll also learn what it means to be community-focused as a company, both internally and externally, so that you grow without outside funding.

17. Work the System by Sam Carpenter

If you’re reading this, then it’s likely you struggle with perfectionism and control — two common traits that entrepreneurs share. More than just learning to build systems, this book will teach you how to let go of perfection and focus on controlling the parts of your business that you can change.

If you want to learn how to scale a business without making a job for yourself, then this book is for you. 

18. The Effective Executive by Peter Drucker

As a business owner, you have to wear a lot of hats and that can get overwhelming. In this book, one of the history’s foremost thinkers on business and management helps you take your effectiveness and efficiency to the next level by asking, “Is this decision even worth making?” 

You’ll learn why and how to delegate based on strengths and not weaknesses, how to make decisions when you have to, and why holding longer decision-making meetings might actually save you more time down the road.

19. The 80/20 Principle by Richard Koch

Whether it’s dealing with toxic customers, having too many business ideas, or just having too much on your plate, entrepreneurs are constantly stretched thin. The main premise of this book — that the largest share of your results is produced by just a small fraction of the work — helps you simplify your professional (and personal) life.

By focusing only on the 20% of products and customers that actually drive your business, you’ll spend more time on the most important tasks, instead of managing your time.

20. Startups Made Simple by Matt Knee

Drawing from his experience running an INC5000 company, Matt helps entrepreneurs start and run their businesses. In this book, he distills lessons from the best business thinkers and books (including ones from this list) and organizes it into a step-by-step system you can follow to start and grow your own business.

Next Steps

Did we miss one? Let us know in the comments!