Zana Tomich
Dalton & Tomich
Dalton & Tomich
When most business owners sit down to create an operating agreement, they’re thinking about the basics—how profits will be divided, who gets a vote, and what happens if someone wants to leave. But in my experience representing small and midsize businesses across Michigan, the most important parts of an operating agreement aren’t about what you expect to happen. They’re about what you don’t.
What if your business partner files for personal bankruptcy? Or becomes permanently disabled? Or passes away unexpectedly? These aren’t theoretical risks—they happen all the time. And if your agreement doesn’t anticipate them, you may be left relying on Michigan’s default laws, spending thousands on legal fees, or facing conflict with people you never intended to be in business with.
A well-drafted operating agreement protects the business, the owners, and the relationships at the heart of it all. Let’s walk through a few unexpected—but all too common—scenarios and how a thoughtful agreement can make all the difference.
—————
The hidden risks of ‘standard’ agreements
Many businesses start with a template operating agreement pulled from a website or repurposed from a different company. These documents might cover the basics, but they rarely go far enough.
If you haven’t talked through hard questions with your partners—and documented clear answers—you’re leaving important decisions to chance. And when something goes wrong, that’s when the weaknesses get exposed.
—————
Five scenarios you probably haven’t planned for
1. A partner files for personal bankruptcy
You might assume that your partner’s financial problems are their business—not yours. But if they file for personal bankruptcy, their ownership interest in the company can become part of their bankruptcy estate.
Without safeguards, you could end up with a bankruptcy trustee (or worse, a creditor) holding a stake in your company.
What to include in your agreement:
? Restrictions on transfer of ownership interests to prevent involuntary ownership changes.
? Buy-sell provisions triggered by bankruptcy filings, allowing the company or other members to buy back the interest.
2. A partner becomes disabled
Disability doesn’t always mean incapacity. What if your partner is no longer able to contribute to the business day-to-day but still expects their share of profits? Or worse, still wants to weigh in on decisions?
This scenario often leads to frustration and resentment—especially if the agreement is silent on what happens next.
What to include in your agreement:
? A clear definition of disability, such as inability to perform essential duties for a certain number of days.
? A process for reassignment of duties and possible adjustment to compensation or distributions.
? A buyout option or long-term transition plan if the disability is permanent.
3. A partner dies
No one wants to think about this. But when a partner dies, their ownership interest doesn’t just disappear—it typically passes to their estate. That means you could suddenly be in business with a surviving spouse, child, or executor.
What to include in your agreement:
? A mandatory buy-sell agreement triggered upon death.
? A valuation method (such as a pre-agreed formula, appraisal, or book value) to determine the price.
? A requirement for key-person life insurance to help fund the buyout.
4. A partner wants out
People’s priorities change. Someone might want to retire early, cash out, or move on to another opportunity. Without a plan in place, this can cause massive disruption—or even force a sale of the business.
What to include in your agreement:
? Voluntary exit provisions with notice requirements, potential non-compete language, and restrictions on timing.
? A right of first refusal, allowing other owners to match any offer from an outside buyer.
? A clear valuation and payment structure to avoid disputes over what the departing partner is owed.
5. A major disagreement
Sometimes it’s not bankruptcy, illness, or death—it’s just irreconcilable differences. If there’s a deadlock between 50/50 partners or a stalemate on a major decision, the business can grind to a halt.
What to include in your agreement:
? A dispute resolution clause that calls for mediation or arbitration before litigation.
? Deadlock-breaking mechanisms, such as a forced sale or buyout after a certain period of deadlock
—————
The building blocks of a strong operating agreement
While every business is different, here are some core provisions that should be discussed and documented:
? Buy-sell terms: When an interest can or must be sold, and how it’s valued
? Restrictions on transfers: Preventing unwanted third parties from gaining ownership
? Voting rights and thresholds: Especially for major decisions like taking on debt or dissolving the company
? Capital contributions and distributions: Who puts in what, and who gets what out
? Roles and responsibilities: Defining day-to-day authority and management
? Succession planning: What happens if someone dies, retires, or becomes incapacitated
vDispute resolution process: So you’re not litigating every disagreement
An operating agreement isn’t just a legal document—it’s a roadmap for how your business will run and survive under pressure. And no template can substitute for a conversation about your specific goals, risks, and relationships.Working with an experienced attorney can help you surface questions you didn’t even know to ask. And it ensures that what’s written in your agreement is legally sound, enforceable, and tailored to Michigan law.
No one starts a business expecting things to go wrong. But smart business owners plan like they might. A strong operating agreement won’t prevent conflict, tragedy, or financial stress—but it can prevent those events from destroying what you’ve built.
—————
Zana Tomich is co-founder of Dalton & Tomich, a versatile Detroit-based law firm, where she works with lending institutions and privately held businesses and nonprofits, often in a general counsel capacity.
What if your business partner files for personal bankruptcy? Or becomes permanently disabled? Or passes away unexpectedly? These aren’t theoretical risks—they happen all the time. And if your agreement doesn’t anticipate them, you may be left relying on Michigan’s default laws, spending thousands on legal fees, or facing conflict with people you never intended to be in business with.
A well-drafted operating agreement protects the business, the owners, and the relationships at the heart of it all. Let’s walk through a few unexpected—but all too common—scenarios and how a thoughtful agreement can make all the difference.
—————
The hidden risks of ‘standard’ agreements
Many businesses start with a template operating agreement pulled from a website or repurposed from a different company. These documents might cover the basics, but they rarely go far enough.
If you haven’t talked through hard questions with your partners—and documented clear answers—you’re leaving important decisions to chance. And when something goes wrong, that’s when the weaknesses get exposed.
—————
Five scenarios you probably haven’t planned for
1. A partner files for personal bankruptcy
You might assume that your partner’s financial problems are their business—not yours. But if they file for personal bankruptcy, their ownership interest in the company can become part of their bankruptcy estate.
Without safeguards, you could end up with a bankruptcy trustee (or worse, a creditor) holding a stake in your company.
What to include in your agreement:
? Restrictions on transfer of ownership interests to prevent involuntary ownership changes.
? Buy-sell provisions triggered by bankruptcy filings, allowing the company or other members to buy back the interest.
2. A partner becomes disabled
Disability doesn’t always mean incapacity. What if your partner is no longer able to contribute to the business day-to-day but still expects their share of profits? Or worse, still wants to weigh in on decisions?
This scenario often leads to frustration and resentment—especially if the agreement is silent on what happens next.
What to include in your agreement:
? A clear definition of disability, such as inability to perform essential duties for a certain number of days.
? A process for reassignment of duties and possible adjustment to compensation or distributions.
? A buyout option or long-term transition plan if the disability is permanent.
3. A partner dies
No one wants to think about this. But when a partner dies, their ownership interest doesn’t just disappear—it typically passes to their estate. That means you could suddenly be in business with a surviving spouse, child, or executor.
What to include in your agreement:
? A mandatory buy-sell agreement triggered upon death.
? A valuation method (such as a pre-agreed formula, appraisal, or book value) to determine the price.
? A requirement for key-person life insurance to help fund the buyout.
4. A partner wants out
People’s priorities change. Someone might want to retire early, cash out, or move on to another opportunity. Without a plan in place, this can cause massive disruption—or even force a sale of the business.
What to include in your agreement:
? Voluntary exit provisions with notice requirements, potential non-compete language, and restrictions on timing.
? A right of first refusal, allowing other owners to match any offer from an outside buyer.
? A clear valuation and payment structure to avoid disputes over what the departing partner is owed.
5. A major disagreement
Sometimes it’s not bankruptcy, illness, or death—it’s just irreconcilable differences. If there’s a deadlock between 50/50 partners or a stalemate on a major decision, the business can grind to a halt.
What to include in your agreement:
? A dispute resolution clause that calls for mediation or arbitration before litigation.
? Deadlock-breaking mechanisms, such as a forced sale or buyout after a certain period of deadlock
—————
The building blocks of a strong operating agreement
While every business is different, here are some core provisions that should be discussed and documented:
? Buy-sell terms: When an interest can or must be sold, and how it’s valued
? Restrictions on transfers: Preventing unwanted third parties from gaining ownership
? Voting rights and thresholds: Especially for major decisions like taking on debt or dissolving the company
? Capital contributions and distributions: Who puts in what, and who gets what out
? Roles and responsibilities: Defining day-to-day authority and management
? Succession planning: What happens if someone dies, retires, or becomes incapacitated
vDispute resolution process: So you’re not litigating every disagreement
An operating agreement isn’t just a legal document—it’s a roadmap for how your business will run and survive under pressure. And no template can substitute for a conversation about your specific goals, risks, and relationships.Working with an experienced attorney can help you surface questions you didn’t even know to ask. And it ensures that what’s written in your agreement is legally sound, enforceable, and tailored to Michigan law.
No one starts a business expecting things to go wrong. But smart business owners plan like they might. A strong operating agreement won’t prevent conflict, tragedy, or financial stress—but it can prevent those events from destroying what you’ve built.
—————
Zana Tomich is co-founder of Dalton & Tomich, a versatile Detroit-based law firm, where she works with lending institutions and privately held businesses and nonprofits, often in a general counsel capacity.
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