I and my co-founder have a web startup (NJ-based L.L.C.). We do not have an operating agreement or a founder's agreement.
We've brought someone onto our team for approximately 5% stake vested over 3 years.
With regards to the new stakeholder/team member, what legal documentation is required to formalize the new member's joining our startup?
This is not a “stakeholder” who is a disinterested (neutral) person who holds funds claimed by two others. The new person is (or will be when vested) a member, i.e. an owner of 5% of the LLC.. Without a good Operating Agmt, you will not be able to fire him or buy him out, so be careful.
You must hire a lawyer to prepare an Operating Agmt for you. Do not accept the standard boiler plate but ask for a form based on a partnership Agmt. Be sure it covers the three D’s: Death, Disability and Disagreement. You would be amazed at how many LLC’s I see either without an OA or with a wholly inadequate one. If you don’t do it, your next AVVO question will be “Joe is not doing any work; how can I get rid of him?” The answer will be “You can’t, unless your OA authorizes it.” The members must have the right and power to expel any member who is not pulling his weight, without the LLC having to make a heavy payment to him.
DISCLAIMERâ€”This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California. (Bryant) Keith Martin sbbizlaw.com
Estate Planning Attorney
I agree with my colleagues, however, you should pay particular attention to "voting rights" issues in the Operating Agreement as well. You want to avoid a "one person, one vote" proposition, or any participation at all by someone who is designed to be a passive investor.
This answer does not constitute legal advice. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship.
Real Estate Attorney
There's needs to be an Operating Agreement between the LLC, the two existing members and the new member to be added. Each of the members should have his own lawyer review the Operating Agreement before everyone signs it. And yes, it is important that it discusses how profits and losses will be split, who is contributing what, and how to deal with death, disability and if one member wants to leave or the others want one member to leave involuntarily.
This response is for general education purposes only and does not constitute legal advice or create the establishment of an attorney-client relationship.