Is the absence of constituent documents putting your closely-held company at risk?

Successful businesses typically start with an idea. You may have found a niche in the market and can offer the product or service to fill it. Nonetheless, there is a more formal side to business formation and operations that cannot be ignored.

Verbal agreements are all well and good, but they are difficult to enforce. Every business should also have constituent documents, such as agreements, contracts and the like. They may even be required by the state before a company can operate lawfully within its boundaries. Are you putting your company at risk by not having this important documentation?

The rights of stakeholders

Your business may benefit from the contributions of various stakeholders. These are parties that have an active interest in the company and its profitability. A constituent document such can outline the role of stakeholders as well as their rights and responsibilities. If these are not clearly drafted in writing, then stakeholders can become unclear as to where they stand, which can in turn give rise to disputes.

Day to day operations

Constituent documents can also outline the hierarchy within a company, from directors to management. This is important so that employees know who they are to report to each day. A clearly defined hierarchy can also make your business more appealing to prospective and existing clients as it shows a thoroughness and sense of organization within the company.

Piercing the corporate veil

Another vital aspect of constituent documents that cannot be overstated is their role in shielding a company’s principles from liability. With the right constituent documents in place, stakeholders, directors and managers should be protected from personal liability both from company debt and company actions. If constituent documents are either not in place or invalid, the court may choose to disregard an LLC’s or a corporation’s structure and instead hold principals personally responsible for company debts and misconduct.

As a business owner, you take on a lot of responsibility. However, it’s important to ensure that legal matters are above board and seeking legal guidance can help ensure that this happens. We provide consulting services to businesses in Florida. Contact us to schedule a consultation to see how we can help you. help businesses who are looking to implement effective constituent documents. Feel free to contact us for a consultation.