The American Law Institute creates a legal publication each year summarizing the major lawsuit cases each year concerning limited liability companies.

Well over half of the cases involve misunderstandings, disputes or disagreements between a Member and the LLC or among Members themselves. In many of these cases, the problem could have been avoided with a proper written LLC Agreement.

It would be malpractice for a lawyer to represent a new business owner client in forming a limited liability company for a business and not insist on that client having a written LLC Agreement to govern the new business.

This is a clear sign that if you are going to form your LLC yourself, do not make the mistake of most do-it-yourself-ers and not adopt a written LLC Agreement for your new legal entity.

Worse yet, if you and any other Members agree on certain matters orally but never reduce it to a writing, you are more than tripling the costs of address any later disputes. Oral agreements are very difficult to prove and resolve in a lawsuit.

LLC Agreements represent the fundamental rules, rights, obligations and processes for the business. As with any o
ther legal agreement involving significant stakes, it should be in writing.

Every Member should review and agree to the LLC Agreement prior to becoming a Member. At the beginning and immediately after formation, the initial Members need to get together to address and agree to all the important matters in the LLC Agreement.

For a multi-member limited liability company, just the discussions and negotiation amongst each other about LLC Agreement matters is an important risk reducing activity.

For a single-member entity, having a written LLC Agreement proper for the business is a key factor to ensuring and preserving protection against personal liability for the single member.

LLC Agreements provide a road map and, in essence, a user manual for the owners and operators of the business. Members should possess a reasonably detailed practical understanding of their limited liability company and the LLC Agreement.

Do not let your LLC end up as a victim of a fatal lawsuit where everyone loses. Start off the right way by insisting on a proper written LLC Agreement for your LLC business. If you can afford the services of an experienced lawyer, this is money well spent. If not, insist on the use of a professional, well drafted LLC Agreement form.