[AR] What agreements protect equal partners when buying an LLC and converting it to an S-Corp?

Lexi, Chatbot

I understand that starting a corporation and bringing in a partner can be a complex process. What type of documentation are you specifically looking for to protect both you and your partner?

Lexi, Chatbot

Have you already established the structure of your corporation, such as whether it will be an LLC, S-Corp, or another type?

Lexi, Chatbot

Is there anything else the Corporate Lawyer should know before I connect you? Rest assured they’ll be able to help with your partnership documentation.

Jon

Hello and thank you for reaching out! I’m Jon, a licensed attorney with over 13 years of experience, and I’m here to help.

I understand legal matters can feel overwhelming, but you’re in good hands. I’ll do my best to make things clear and guide you toward the right solution for your situation.

1. What state will your corporation be registered in or primarily operate from?

2. Will both you and your partner be contributing equal amounts of capital or resources, or will ownership or roles differ?

Jon

Will you and your partner be equal co-owners of the new corporation, or will ownership percentages differ?

Are you planning to have a formal agreement outlining each partner’s roles, responsibilities, and decision-making authority within the company?

Jon

Understood. I believe I have all the information I need. Is there anything else you’d like to add before I start working on your answer?

Jon

The heart of your setup will be the agreements you create between the two of you, because these documents will protect you both and prevent future conflicts.

The first thing you’ll want is a clear operating agreement. Since you and your partner will own the business equally, this agreement is your rulebook. It explains how the business works internally, lays out each person’s rights and responsibilities, and provides a framework for handling challenges down the road. You’ll want to clearly state your 50/50 ownership, describe what each of you is contributing, and assign roles so there’s no confusion later.

For now, you’ll need an Arkansas operating agreement since the company is still formed there. Even if you move the company to Florida later, you’ll need this in place during the purchase until you formally register in Florida or convert the business structure.

You should also decide how major decisions will be made. With a 50/50 split, deadlocks are common, so having a process—such as mediation or a specific voting mechanism—is critical. You’ll also want to address compensation, profit distributions, and, importantly, exit strategies if one partner leaves, becomes disabled, or passes away.

A buy-sell agreement is also essential. This can be part of the operating agreement or a separate document. It answers difficult “what if” questions and prevents ownership interests from transferring unexpectedly due to divorce, death, or bankruptcy. (AR Code § 4-38-502)

Once you convert the LLC to an S-Corp and move operations to Florida, you’ll need new documents entirely, including Articles of Incorporation and corporate bylaws. Bylaws govern how the corporation itself operates, including officer roles, voting procedures, and meetings.

Because this transition has legal and tax consequences, it’s wise for both partners to have attorneys review the documents. A CPA or tax professional is also important to ensure S-Corp compliance, especially regarding salaries and profit distributions.

In short, the two most important documents to focus on now are the operating agreement and the buy-sell agreement. Together, they will protect both of you and provide stability as you grow the business.

Jon

You’re very welcome! Did that help clear things up for you? If you have any other questions or need more help, don’t hesitate to ask.

Jon

I’m glad to hear that. If anything else comes up, feel free to reach out. Wishing you all the best moving forward!