Is an operating agreement required?

Most states do not require filing an operating agreement, but having one is strongly recommended to document ownership and governance terms. Some banks and investors will require an executed agreement to open accounts or complete funding.

Can the agreement be signed electronically?

Yes. Electronic signatures are generally enforceable under the ESIGN Act (15 U.S.C. ch. 96, 2000) and state UETA laws where adopted, provided intent, consent, attribution, and record retention criteria are met.

Do formation agreements need notarization or witnesses?

Operating agreements and shareholder agreements are typically internal and do not require notarization, but state-specific documents (deeds, wills) may. If a third party requests notarization or your jurisdiction requires it, use in-person or RON procedures.

Who should sign the agreement?

All founders or initial shareholders should sign to evidence consent to finance and governance terms. Where authority is delegated, an authorized officer or manager may sign consistent with internal resolution language.

How should executed copies be stored?

Store signed originals in corporate records and maintain tamper-evident signed PDFs with audit trails that show timestamps, signer attribution, and consent to electronic records for reproducibility.

What if an owner moves or name changes?

Execute an amendment documenting name or address changes and retain the amended agreement with the corporate records. Notify banks, registered agents, and tax authorities as required.

Electronic Signature
Templates
Legal
Business Formation Agreement

Business Formation Agreement

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BUSINESS FORMATION AGREEMENT

This Business Formation Agreement (the "Agreement") is made effective as of by and between Party A Name: , Entity Type: Individual Corporation LLC Partnership, Principal Place of Business: and Party B Name: , Entity Type: Individual Corporation LLC Partnership, Principal Place of Business: .

RECITALS

WHEREAS, the parties desire to associate themselves as co-founders for the purpose of forming a business entity under the laws of the State of to engage in the business described as ; and

WHEREAS, the parties intend that the business be formed as an entity to hold assets, enter contracts, employ personnel, and carry out the business purpose described above, and that the rights and obligations of the parties be governed by this Agreement; and

WHEREAS, the parties desire to set forth their capital contributions, ownership interests, management structure, and other terms and conditions for the formation and operation of the business.

NOW, THEREFORE

In consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. FORMATION; NAME; PRINCIPAL PLACE OF BUSINESS

1.1 Formation. The parties agree to form a business entity (the "Company") pursuant to the laws of the State of . The Company shall be formed upon filing of the necessary formation documents with the appropriate authority and acceptance by the parties.

1.2 Company Name. The name of the Company shall be (the "Company Name"), or such other name as the parties may unanimously agree in writing.

1.3 Principal Place of Business. The principal place of business of the Company shall be or such other location as the Managers or Members designate in writing.

2. CAPITAL CONTRIBUTIONS; OWNERSHIP

2.1 Initial Contributions. Each party shall make the initial capital contribution listed opposite its name below. The parties acknowledge that such contributions shall be contributed in cash, property, or services as described and valued by mutual agreement and recorded in the Company books.

Party A Initial Capital Contribution Party B Initial Capital Contribution

2.2 Ownership Percentages. Ownership interests shall be allocated as follows and shall be reflected in the Company records:

Party A Ownership Percentage Party B Ownership Percentage

3. MANAGEMENT; VOTING; AUTHORITY

3.1 Management Structure. The Company shall be: Member-managed Manager-managed. If Manager-managed is selected, initial Manager(s) shall be appointed by unanimous written consent of the Members.

3.2 Voting. Except as otherwise provided in this Agreement or required by law, matters requiring Member approval shall be decided by a majority vote of the ownership interests. Specific actions requiring a supermajority or unanimous consent are set forth in writing in the Company records.

4. ALLOCATIONS; DISTRIBUTIONS; TAX MATTERS

4.1 Allocations. Profits and losses of the Company shall be allocated to the Members in proportion to their respective ownership percentages, subject to adjustments required by applicable tax law and any special allocations agreed in writing by the Members.

4.2 Distributions. Distributions of available cash shall be made at such times and in such amounts as determined by the Managers or, if Member-managed, by a majority of Members holding a majority of ownership interests, taking into account working capital, reasonably anticipated expenditures, and contingent liabilities.

4.3 Tax Classification and Returns. The Company will be treated for federal and state tax purposes as elected by the Members. The Members shall timely prepare and file all tax returns and shall make any elections required by a majority of the Members. Tax matters shall be handled by a designated tax matters representative selected by the Members.

5. TRANSFERS; RIGHT OF FIRST REFUSAL

5.1 Transfers. No Member shall sell, pledge, assign, or otherwise transfer all or any part of its interest in the Company except in accordance with this Agreement and applicable law. Any attempted transfer in violation of this Section shall be null and void.

5.2 Right of First Refusal. Before any Member may transfer an interest to a third party, the transferring Member shall deliver written notice to the other Members specifying the terms, and the non-transferring Members shall have a right of first refusal to purchase the interest on the same terms within thirty (30) days.

6. REPRESENTATIONS; WARRANTIES; COVENANTS

6.1 Each party represents and warrants that: (a) it has full power and authority to enter into and perform its obligations under this Agreement; (b) the execution and delivery of this Agreement and the performance of its obligations will not violate any agreement to which it is a party; and (c) the execution and performance have been duly authorized by all necessary action.

6.2 Covenants. Each party covenants to execute and deliver such documents and to take such actions as may be reasonably necessary to effectuate the formation and operation of the Company in accordance with this Agreement.

7. BOOKS; BANK ACCOUNTS; RECORDS

Bank Account Name

7.1 Records. The Company shall maintain complete and accurate books and records of its operations, including a capital account for each Member, and shall make such records available for inspection and copying by any Member during normal business hours upon reasonable notice.

8. NOTICES

8.1 All notices, demands or other communications required or permitted under this Agreement shall be in writing and shall be delivered personally, sent by certified mail (return receipt requested), or delivered by nationally recognized overnight courier to the addresses set forth below or to such other address as a party shall designate by written notice in accordance with this Section.

Notice Address for Party A Notice Address for Party B

9. AMENDMENTS; WAIVER

9.1 Amendment. This Agreement may be amended only by a written instrument signed by all Members unless a lesser threshold is specified elsewhere in this Agreement.

9.2 Waiver. No failure or delay by any party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise preclude any other or further exercise thereof.

10. COUNTERPARTS; EXECUTION

10.1 This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Signatures delivered by electronic means shall be binding as original signatures.

11. GOVERNING LAW; ENTIRE AGREEMENT; SEVERABILITY

11.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of , without regard to conflict of laws principles.

11.2 Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written.

11.3 Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired.

12. MISCELLANEOUS PROVISIONS

12.1 Confidentiality. Each party shall keep confidential the Company’s proprietary information and trade secrets and shall not disclose such information except as required by law or as necessary to perform its obligations hereunder.

12.2 Remedies. Each party acknowledges that monetary damages may be inadequate to remedy a breach and that the non-breaching party shall be entitled to equitable relief, including injunctive relief and specific performance, in addition to any other remedies available at law or in equity.

SIGNATURES

Party A Name:

By:

Date:

Party B Name:

By:

Date:

What a Business Formation Agreement Is and When It Matters

A Business Formation Agreement (also called an operating agreement for LLCs or shareholder agreement for corporations) is a written contract among the founding owners that defines ownership percentages, capital contributions, management rights, voting procedures, profit and loss allocation, transfer restrictions, dissolution mechanics, and dispute resolution. It clarifies governance and financial obligations, documents initial capital and equity splits, and can establish decision-making authority and roles for officers or managers. While some states do not require a formation agreement to file articles of organization or incorporation, the agreement governs internal relations and reduces later disputes among owners.

Why a Clear Formation Agreement Matters for New Businesses

A written Business Formation Agreement creates predictable governance, protects liability separation, and records financial commitments. It helps prevent ownership disputes, supports banking and investor due diligence, and clarifies exit and dissolution mechanics. When executed properly it strengthens internal controls and demonstrates professionalism to third parties.

Who Typically Prepares and Signs a Formation Agreement

Founders, investors, and business attorneys commonly draft, review, and sign formation agreements during entity setup.

Founders and co-owners who need to document equity splits, capital contributions, and management roles.
Investors and advisors who require governance terms and transfer restrictions before funding.
Attorneys and accountants who draft or review language to align tax, liability, and regulatory considerations.

Multiple signatories and an advisor review reduce risk; distribution to banks, payroll providers, and registered agents is standard after execution.

Representative Signer Profiles

Founder / CEO

A founder or CEO signs as an initial owner and often accepts managerial duties. Their signature confirms capital contribution amounts, ownership percentage, and consent to any vesting or transfer restrictions within the agreement.

Business Counsel

An attorney or corporate counsel reviews statutory compliance, tax treatment, and fiduciary duty language, and may sign to certify that the agreement reflects negotiated terms and conforms to state corporation or LLC statutes.

Essential Clauses Every Professional Formation Agreement Should Include

A robust Business Formation Agreement organizes ownership, governance, finance, and exit rules. Well-drafted clauses prevent ambiguity about decision-making, capital obligations, transfers, and dispute handling while aligning with state filing documents and tax elections.

Ownership & Capital

Specify each member or shareholder, initial capital contributions, ownership percentages, treatment of additional capital calls, and mechanics for adjusting ownership on future contributions or dilution.

Management Structure

Define whether the entity is manager-managed or member-managed (LLC) or the board/officer structure (corporation), list officer roles, and allocate day-to-day authority and reserved matters.

Voting & Decision Rights

Describe voting thresholds for ordinary and special matters, quorum rules, veto rights for key stakeholders, and procedures for written or electronic consents.

Transfer Restrictions

Include right of first refusal, buy-sell provisions, lock-ups, and conditions for admitting new members or shareholders to control transfers and preserve ownership stability.

Dissolution & Exit

Set triggering events for dissolution, winding-up procedures, distribution waterfall, valuation methods for buyouts, and timeline for winding up business affairs.

Dispute Resolution

Provide dispute-resolution pathways—mediation, arbitration, governing law selection, and venue—to reduce litigation risk and speed resolution of internal conflicts.

Step-by-Step: Completing and Executing a Formation Agreement

Follow these practical steps to prepare, sign, and store the agreement to reduce legal and administrative friction.

01

Draft Terms: Assemble owners, decide capital and governance provisions.
02

Legal Review: Have counsel review for statutory and tax implications.
03

Signatures: All owners sign and date; include witness or notary if required.
04

Distribute Copies: Share executed copies with bankers, registered agent, and key advisors.

How to Configure an Online Workflow for This Agreement

Set up a digital signing workflow that reflects signing order, authentication level, and required fields before distribution.

Field	Configuration
Signing Order	Sequential or parallel based on approval needs
Authentication	Email link, SMS code, or stronger KBA where required
Required Fields	Signature, date, and capital contribution amounts mandatory
Notification	Set reminders and final completed-copy delivery

Where to File, Send, and Store the Executed Agreement

After execution, route the agreement to the appropriate filing and record-keeping locations to complete entity setup and maintain compliance.

Secretary of State: File articles of organization/incorporation with the state SoS.
IRS / EIN: Apply for an EIN and retain the agreement for tax records.
Registered Agent: Provide a copy to the registered agent for service-of-process.
Corporate Records: Store the executed agreement in the entity’s corporate records book.

Digital Signing and Format Considerations

Choose a platform that supports secure signing, audit trails, common file formats, and required signer authentication.

File Formats: PDF and DOCX supported for editing and signed archival
Integrations: Connectors for Google Workspace, Microsoft 365, NetSuite
Authentication: Options: email, SMS, KBA, or advanced signer verification

Common Timing and Filing Deadlines to Track

Track formation, tax, and reporting deadlines immediately after execution to avoid penalties and preserve liability protections.

Articles Filing:

File with Secretary of State promptly; processing varies by state

EIN Application:

Apply for an EIN after formation to open bank accounts and hire staff

Initial Reports:

Some states require initial/annual reports shortly after formation

Annual Fees:

Monitor state franchise taxes or annual report fees to remain in good standing

Tax Returns:

File entity and owner tax returns by federal deadlines (e.g., Form 1040/1120 dates)

Consequences of Errors or Missing Steps

Governance Disputes: Unclear terms invite litigation

Liability Exposure: Failure to observe formalities may pierce the corporate veil

Tax Penalties: Incorrect filings can trigger IRS fines

State Noncompliance: Late reports may incur fees or administrative dissolution

Banking Problems: Mismatched names can block account opening

Investor Issues: Ambiguous transfer rules may deter funding

Common Mistakes to Avoid When Preparing the Agreement

Using informal or inconsistent legal names across documents causes bank and filing rejections and undermines enforceability.
Failing to document capital contributions and vesting creates later disputes over ownership percentages and dilution.
Omitting transfer restrictions or buy-sell provisions can allow unintended transfers to third parties or competitors.
Relying on a one-size-fits-all template without legal review risks missing state-specific statutory requirements and tax consequences.

Key Information Fields the Agreement Should Contain

Entity Name: Full legal name

Formation Type: LLC, Corporation, or Partnership

Registered Agent: Name and street address

Principal Address: Operational street address

Capital Contributions: Amounts and form

Ownership Percentages: Exact member/shareholder splits

Practical Examples of How Formation Agreements Are Used

These scenarios illustrate common formation choices and the clauses typically relied upon in different contexts.

Small LLC Formation

Two friends start a service business and agree on profit shares and management responsibilities.

They document capital contributions and a buy-sell clause.
The written agreement prevented a dispute when one founder wanted to reduce hours and enabled a smooth buyout based on agreed valuation mechanics.

Startup with Investors

A technology startup issues equity to angel investors and sets vesting schedules for founders.

Investors require drag-along and anti-dilution protections.
Including investor protections and clear exit rights helped secure funding while preserving founder control through defined voting thresholds.

Practical Tips for Accurate and Efficient Completion

Follow careful drafting and execution practices to reduce downstream friction and administrative costs.

Use Exact Legal Names

Always use the entity and individual names as registered with state and federal agencies. Consistency avoids bank rejections, tax mismatches, and problems when transferring ownership or registering securities.

Document Capital Clearly

State amounts, payment methods, and timing for contributions. Define remedies for missed contributions and procedures for resolving valuation disputes and dilution to preserve investor confidence.

Preserve Execution Records

Keep audit trails, signed originals, and notarizations or RON recordings where used. These records support enforcement and demonstrate compliance with ESIGN and UETA requirements for electronic execution.

Align With Filings and Tax Elections

Ensure the agreement’s tax treatment statements match IRS elections (e.g., S election) and that formation filings with the Secretary of State reflect the governance model described in the agreement.

Comparing eSignature Pricing and Capabilities for Formation Agreements

Price and feature trade-offs matter when executing formation agreements electronically. The table compares starting price, trial availability, bulk send, audit trail, HIPAA suitability, and envelope caps.

	signNow	DocuSign	Adobe Sign	PandaDoc	HelloSign
Starting Price	$8/user/mo	$15/user/mo	$14/user/mo	$19/user/mo	$15/user/mo
Free Trial	7-day free trial	Verify	Verify	Verify	Verify
Bulk Send	Yes	Yes	Yes	Yes	No
Audit Trail	Yes	Yes	Yes	Yes	Yes
HIPAA Compliant	Yes	Yes	Yes	No	No
Envelope Cap	No cap	100 envelopes/user/year	No cap	No cap	No cap

Frequently Asked Questions About Business Formation Agreements

Answers to the most common practical and legal questions about completing, signing, and storing formation agreements in the United States.

Need help? Contact support

Is an operating agreement required?
Most states do not require filing an operating agreement, but having one is strongly recommended to document ownership and governance terms. Some banks and investors will require an executed agreement to open accounts or complete funding.
Can the agreement be signed electronically?
Yes. Electronic signatures are generally enforceable under the ESIGN Act (15 U.S.C. ch. 96, 2000) and state UETA laws where adopted, provided intent, consent, attribution, and record retention criteria are met.
Do formation agreements need notarization or witnesses?
Operating agreements and shareholder agreements are typically internal and do not require notarization, but state-specific documents (deeds, wills) may. If a third party requests notarization or your jurisdiction requires it, use in-person or RON procedures.
Who should sign the agreement?
All founders or initial shareholders should sign to evidence consent to finance and governance terms. Where authority is delegated, an authorized officer or manager may sign consistent with internal resolution language.
How should executed copies be stored?
Store signed originals in corporate records and maintain tamper-evident signed PDFs with audit trails that show timestamps, signer attribution, and consent to electronic records for reproducibility.
What if an owner moves or name changes?
Execute an amendment documenting name or address changes and retain the amended agreement with the corporate records. Notify banks, registered agents, and tax authorities as required.

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