Have you ever gone to a concert or a symphony? It may seem like everyone in the band or the orchestra is in perfect sync, they know when the guitar solo is going to take over, or when the violins will start. Band members must know when to play, and equally important, when not to play. This is something that business owners should require as well. Just like musicians have musical scores that inform them of what everyone in the band will be doing, business owners can use consent forms as the tool to minimize misunderstandings between those who have authority as owners or designated authority by the owners.
What Are Consent Forms?
Consent forms are used to document, get this, consent. They are documents that ensure that everyone in the business is on the same page. Just like musicians who know when which instrument is going to play so that the concert runs smoothly, business owners need to know and agree to what decisions are being made so that the business can run smoothly.
In a Limited Liability company (LLC), you may think that consent forms may seem tedious or bureaucratic because you are the metaphorical composer of the business. However they are essential for ensuring that all members of your LLC are on the same page, even if you are the one designated with making the final decisions. Without unanimous written consent forms, there could be confusion or legal disputes simply because human beings may leave a meeting with different ideas on what is expected of them. Legal disputes can harm the reputation of the business and can make your life significantly more difficult.
Consent Forms Deliver Peace of Mind
To fully benefit from the power of consent forms, you must acknowledge the intentional mapping out of decision making authority. What if the orchestra played the symphony out of order? Maybe it would still sound okay but maybe it would cause enough confusion that musicians would refuse to participate. Then what’s left is no symphony and some frustrated musicians.
The operational documents of an LLC work together and are carefully constructed to allow for decisions to be made while at the same time prevent a member from going rogue. It starts with the Articles of Organization which are also known as the Certificate of Organization in some states. Next, is the Operating Agreement which contains the careful planning of how decisions will be made for the LLC. Finally, the Unanimous Written Consent forms carry out LLC actions in compliance with the Operating Agreement. It is key that all of these documents are carefully drafted to work together and written with plain language, no legalese. Here is the method to follow:
Articles (or Certificate) of Organization
This is a document that includes the basic information about the LLC. Things like its name, address, registered agents, and information about the managers or officers. Typically, the Articles of Organization is the only document that will be part of the LLC record with the state. Its important that you keep this information updated so it always accurately represents the information. If not, and you are sued, failure to have a correct address or the principals correctly identified could be one of many pieces of evidence used against you in a lawsuit which opens up liability for the members.
The Operating Agreement
The Operating Agreement is the foundation of the LLC by outlining the rules, regulations, and responsibilities. This is where the composer will take time to ensure the flow is not off track. Too many times we see members rush through this process and throw together an Operating Agreement that will cause more legal stress because it wasn’t carefully mapped out. When you understand your own expectations with the business, combined with your business partners, then with the guidance of an LLC attorney, you will create a method of protection for yourself and for the business. In an Operating Agreement, the business owners clearly specify how decisions will be made. Along with who will have the authority to make them.
The decisions are implemented through Unanimous Written Consent forms. Essentially, Written Consents identify the specific section of the Operating Agreement that permits a particular action and the individuals that will sign the form showing their “consent”. This is a simple way to ensure that decisions are handled in accordance with the Operating Agreement. When you have a consent form to refer to when a misunderstanding arises, you have a document that backs up what was discussed and agreed to. We anticipate your symphony opening night to be a success with consent forms. They give you peace of mind knowing that you have carefully planned out how to protect the business, so if you get served with a lawsuit or receive an IRS audit notice, you can simply say, “Bring it on.”
What are the Risks of Not Following Your Own Rules?
There are a myriad of issues that can arise if your LLC doesn’t have one of these documents. If any members of an orchestra refuse to acknowledge the other performers, the concert could crash and burn. On the same note, if any members of a company venture out on their own and go rogue, they invite liability risk to the business and to the other members individually. Do you really want your business partner risking your personal assets? Failing to follow your own rules with consent forms opens yourself up to issues in your business like:
- Personal Liability
- Disagreements and Conflicts
- Loss of Business Continuity
- Damaged Reputation
- Compliance Issues
- Legal Fees
The LLC is a separate being from the members and must be treated that way. The Operating Agreement protects the LLC from the actions of its members. The members are human beings and sometimes human beings take action based on emotions which is difficult to control. Consent forms provide a way to control the risk when a key player with authority fails to comply. Managing risk with a simple tool like a consent form minimizes disruption with the business operations. The moment a legal issue disrupts your symphony, the concert will be able to continue because you followed your own rules by documenting actions with Unanimous Written Consent forms.
The “Coda” of LLC Consent Forms
To conclude, both concerts and consent forms require careful planning and organization to ensure success. They both also involve a high level of communication and agreement among the members involved. However, a missed note or queue in a concert may only cause a small hitch in production. Legal action could be a huge problem for a small business. It’s critical that LLC members take time to properly document important decisions to protect the success of their business.
It may seem daunting to set up unanimous written consent forms. But we are here to help! If you want help keeping the symphony of your business sounding clear and beautiful, feel free to reach out to Avanta. Our consent form templates come together with Operating Agreements. If you find yourself not able to keep up with documenting actions with consent forms then call us to do it for you! Our consent packages range from single action items to annual consents that are necessary when you are behind.