Money can be tricky business, and when your business needs more of it, things can get complicated in a hurry, especially if you haven’t previously addressed the issue in your operating agreement. So what happens if your company needs additional capital? Who fronts the dough, and what are the consequences for failing to do so?
What To Do When Money Calls
Say your business is hit with a lawsuit or is going through a financial rough patch, do you as a business partner have to put up the additional capital to help get your business through the situation? For answers, you should first look at your operating agreement to see what you have in writing.
As noted in Florida Statute §605.0403, “A promise by a person to contribute to the limited liability company is not enforceable unless it is set out in a writing signed by the person.”
Said another way, if there is no provision in your operating agreement requiring liability for contributions, there is no legal way to force a business partner to put up additional capital if the company needs it.
What’s more, without an agreement stating any consequences for failing to put up capital, a business partner’s interest will not automatically be diluted if they don’t contribute.
“But that’s not fair!” You might be screaming. And business partnerships should be fair. To prevent money heartache down the road and ensure fairness among all stakeholders, it’s imperative to draft a thorough operating agreement at the outset of your business’ formation. Your shareholder agreement needs to address what will happen if a business partner does not contribute capital if the company needs it. It is far easier (and cheaper!) to address potential issues before they arise.
For help drafting your operating agreement or to get answers to any of your corporate law questions in Florida, give us a call at the Law Offices of Alex D. Sirulnik, P.A.
