Principal exposures
Ordered by severity to Mason specifically.
Critical
Accountable for growth, denied the tools to produce it §3.1 vs §3.2
§3.1 grants "full and complete authority," then §3.2 requires unanimous consent to hire or remove anyone, set any compensation, enter or amend any contract "including ordinary-course contracts," spend anything at all on marketing, exceed $500 per month in aggregate operating expenses, or approve the annual budget.
The other two can withhold the resources and then cite flat growth as the §4.8 failure that starts the chain above. This loop is the most dangerous structure in the document.
Critical
The IP contribution may carry no capital account value Schedule I, §5.1, §10.3(c)
Schedule I records Mason's contribution as "IP Contribution and other good and valuable consideration" with no dollar figure, while §5.1 states that the Members "have each contributed cash" — a direct contradiction.
Liquidation proceeds are distributed by positive Capital Account balances. If the IP was never valued and credited, Rodrigues and Keats hold $10,000 each on the books and Mason may hold close to nothing, despite contributing the asset the business runs on. The Gross Asset Value definition also lets the disinterested members compel a third-party appraisal of that IP, so they effectively control what it is worth.
High
Two clauses in direct conflict over amendments Art. XII vs §3.2(c)
The Miscellaneous amendments clause permits amendment on the signature of the Manager plus a Majority in Interest. §3.2(c) requires unanimous consent. Both cannot be true. Left unresolved, a two-member majority may argue it can amend around the §3.2 protections.
High
Disability is a hair trigger, and only for Mason §4.8, Economic Interest Transfer
Disability or incompetency halting day-to-day participation for 60 days without expected meaningful recovery causes Mason to cease immediately as both Member and Manager; the interest converts to a non-voting economic interest held by spouse or estate, then runs through the Buy-Sell terms. §4.8 separately permits termination after 30 consecutive days of non-participation. Because Mason alone has a participation obligation, both provisions can only ever fire at him.
Moderate
No valuation standard, and no leaver distinction §9.5, §9.6
§9.5 sets a sensible appraiser escalation but never specifies the standard of value — going-concern versus fair market, and whether minority-interest or lack-of-marketability discounts apply. On a private company with no comparables, that gap can swing the number substantially, and it cuts against whoever is being bought out.
§9.6 applies identical terms regardless of cause. A member forced out on a contestable allegation receives exactly what a deceased member's estate receives, and a member guilty of genuine misconduct receives the same again.
Moderate
The deadlock clause is mathematically unreachable §2.1, §4.7
"Deadlock" requires an exact 50/50 split of outstanding Membership Interests. At 33.34 / 33.33 / 33.33 no combination produces a 50.00% tie; a two-against-one split is 66.67 to 33.33, which is not a deadlock under this definition.
The mediation and shotgun buy/sell in §4.7 is the only dispute-resolution machinery in the agreement, and it will not fire for the disputes this cap table will actually produce.
Minor
Drafting defects in the limitations list §3.2
The subsection letters repeat — two (g), three (j), three (k) — leaving it ambiguous which restrictions are actually captured. A copy-paste artifact, but one that invites argument about scope later.
What does protect him
Worth knowing, because two of these are conditional on him keeping his seat.
Holds
Amendments need the Manager's signature Art. XII, §3.2(c)
While Mason is Manager and a member in good standing, the agreement cannot be rewritten around him under either reading. This protection ends the moment §9.7 strips his vote — which is precisely why the buyout triggers matter more than the amendment clause itself.
Holds
He cannot be diluted by a capital call §5.2(d), §5.3
The §5.3 forfeiture remedy only reaches a member who failed to fund a capital call, and §5.2(d) requires unanimous approval before any call can be made. Mason would have to agree to the call before the forfeiture mechanism could ever reach him.
Possible escape hatch
The non-compete may not survive North Carolina law §11.2, §11.4
North Carolina applies a strict blue pencil doctrine: courts may strike through but may not rewrite overbroad language in a non-compete, even where the contract purports to grant that power. In Beverage Systems of the Carolinas v. Associated Beverage Repair (N.C. 2016) the Supreme Court held that parties cannot contract to give a court a power it does not have, and declined to act as scrivener.
§11.2 contains no geographic limitation at all, and geographic scope is measured against where the business's customers actually are. Because the restriction is not drafted in severable territorial divisions, a court finding it overbroad would likely have nothing left to enforce — and the §11.4 reformation clause would not save it. This is a litigation position, not a plan.
Background on the decision (K&L Gates)
Proposed redlines
Draft language prepared from Mason's position, following the priority order above. Bracketed figures are placeholders for Mason to set. This is a starting point for an attorney to refine against the NC LLC Act and the rest of the document, not final drafting.
1 Neutral determination before any breach-based Buy-Sell Event
The problem. §9.1(e) and §9.1(g) let any single Member start a forced buyout by alleging breach. "Material breach" is undefined. §9.7 then strips the accused Member's votes from the date the event "occurs" — with no neutral party having decided anything.
1a · Add a definition to Article II
"Material Breach" means a breach of this Agreement that (i) causes, or is reasonably likely to cause, demonstrable monetary harm to the Company in excess of $[25,000]; or (ii) constitutes fraud, willful misconduct, misappropriation of Company funds or Company intellectual property, or a knowing violation of Article XI. A good-faith disagreement regarding business judgment, strategy, budget, staffing, or the exercise or withholding of any consent, approval, or vote permitted under this Agreement shall not constitute a Material Breach.
The final sentence is the important one. Without it, "you vetoed my budget and I vetoed your hire" is arguably a breach.
1b · Replace §9.1(e) and (g)
(e) Any Material Breach of this Agreement by a Member, determined in accordance with Section 9.1A;
(g) Any material violation of Section 4.8 of this Agreement, determined in accordance with Section 9.1A.
1c · Add new §9.1A
9.1A Determination of Breach Events. Notwithstanding Sections 9.1(e) and 9.1(g), no Buy-Sell Event shall be deemed to have occurred under either subsection unless and until each of the following has occurred:
(i) written notice specifying in reasonable detail the alleged Material Breach or violation, and the facts and circumstances supporting it, has been delivered to the Member alleged to be in breach;
(ii) such Member has failed to cure within sixty (60) days after delivery of such notice or, where the alleged breach is not reasonably susceptible of cure within sixty (60) days, has failed to commence cure within such period and thereafter to pursue it diligently to completion within one hundred twenty (120) days; and
(iii) a neutral arbitrator appointed under Section 9.1B has determined, by written award, that the alleged Material Breach or violation occurred and was not timely cured.
The date of such written award shall be the date of occurrence of the Buy-Sell Event for all purposes under this Agreement, including Section 9.7.
1d · Add new §9.1B
9.1B Arbitration of Breach Determinations. Any determination required under Section 9.1A shall be made by a single arbitrator under the Commercial Arbitration Rules of the American Arbitration Association, seated in [Charlotte / Raleigh], North Carolina. The arbitrator shall be a licensed attorney with not less than ten (10) years' experience in business and commercial disputes, and shall not be, and shall not have represented within the preceding five (5) years, the Company, its regular legal counsel, any Member, or any Affiliate of a Member. The Company shall bear the costs of arbitration, provided that the arbitrator may award costs and reasonable attorneys' fees against any party found to have asserted or defended a claim without reasonable basis.
1e · Amend §9.7
Insert at the start of the section:
Except with respect to a Buy-Sell Event arising under Section 9.1(e) or 9.1(g), as to which this Section shall not apply until the date of the written award described in Section 9.1A(iii),
and add at the end:
Until such date, the Member alleged to be in breach shall retain in full all rights as a Member and, if applicable, as Manager, including all voting, consent, approval, information, and management rights under this Agreement.
Why this is the highest-priority item. Everything else on this list reduces damage. This one removes the mechanism.
2 Make §4.8 concrete, and conditional on resources
The problem. Mason carries the only performance obligation, it is undefined ("substantial working hours," "growing profitably"), and the other two are expressly exempt from any hours requirement. That undefined standard is the input to the buyout trigger above.
2a · Replace the Mason duties paragraph
William M.C. Mason, Manager shall manage the day-to-day business and affairs of the Company, including setting the Company's strategic direction and product roadmap; developing a proposed annual budget for Member approval; overseeing and directing the day-to-day work of employees, contractors, and officers; and taking such other reasonable actions on behalf of the Company as are consistent with this Agreement. Mason shall devote not less than an average of [twenty (20)] hours per week, measured over each calendar quarter, to the Company's affairs. This Agreement does not require the Company to be Mason's sole or primary occupation.
2b · Add a new paragraph immediately after
Mason's obligation under this Section is to devote the time and effort specified above in good faith, and is not a guarantee of any revenue, growth, or profitability result. No failure to achieve any business objective shall constitute a breach of this Section, or a violation for purposes of Section 9.1(g), where the Members have failed to approve an annual budget proposed under Section 3.2, have withheld consent to any expenditure, engagement, or contract reasonably requested by the Manager in furtherance of such objective, or have otherwise withheld resources reasonably necessary to achieve it.
2c · Amend the termination trigger in §4.8(a)
Change "thirty (30) consecutive days" to ninety (90) consecutive days, and change the recovery window from sixty (60) days to one hundred eighty (180) days.
2d · Optional, worth raising
Optional
Give Rodrigues and Keats defined obligations too — a quarterly compliance and recordkeeping review delivered in writing, for instance. Symmetry is easier to argue for than a carve-out, and it makes §9.1(g) a two-way street rather than a weapon that only points one direction.
3 Rebuild §3.2 so authority matches accountability
The problem. A $500/month aggregate operating cap, unanimous consent for any hire, any contract "including ordinary-course contracts," any compensation decision, and any marketing spend at all — while Mason is accountable for growth.
3a · Delete outright
The duplicate-lettered clauses requiring unanimous consent for: entering, amending, or terminating any contract including ordinary-course contracts; hiring or removing any employee, contractor, or officer regardless of role or compensation; establishing job titles or role responsibilities; setting or changing compensation; any marketing or advertising expenditure in any amount.
3b · Replace with thresholds
Without the unanimous consent of all Members evidenced in writing, the Manager shall have no authority to:
(g) cause the Company to incur, in any calendar month, aggregate expenditures exceeding the greater of (i) the amounts provided in the then-current approved annual budget, or (ii) $[5,000];
(h) engage or terminate any employee, contractor, or officer whose aggregate annualized compensation exceeds $[30,000], or whose engagement is not provided for in the then-current approved annual budget;
(i) enter into, amend, or terminate any contract of the Company that (A) has a term exceeding twelve (12) months and is not terminable by the Company on ninety (90) days' notice or less, or (B) obligates the Company to pay more than $[10,000] in the aggregate;
(j) cause the Company to incur marketing or advertising expenditures exceeding the amounts provided in the then-current approved annual budget, or, if no budget is then in effect, $[1,500] in any calendar month.
3c · Add a budget-default clause — do not skip this one
If the Manager proposes an annual budget in writing and the Members have not approved it, or approved a revised budget, within thirty (30) days after such proposal, the prior fiscal year's approved budget, with each line item increased by [ten percent (10%)], shall be deemed the approved budget for the then-current fiscal year until a new budget is approved. For the first fiscal year in which no prior approved budget exists, the deemed budget shall be $[__] per month in aggregate operating expenditures.
Without this, the other two can simply decline to approve any budget, leaving Mason at the fallback cap indefinitely and then citing the resulting stagnation. Inaction is the cheapest way to starve him, and it currently costs them nothing.
3d · Housekeeping
Renumber the subsection letters, which currently repeat — two (g), three (j), three (k).
4 Value the IP contribution and fix the §5.1 contradiction
The problem. Schedule I says "IP Contribution and other good and valuable consideration" with no figure. §5.1 says all Members contributed cash. Liquidation pays out on Capital Account balances. As drafted, Mason may have a near-zero capital account against $10,000 each for the others.
4a · Replace the §5.1 first sentence
Contemporaneously with the execution of this Agreement, each Member has made the Capital Contribution, in cash or in property, set forth opposite such Member's name on Schedule I attached hereto, at the agreed value stated therein.
4b · Revise the Schedule I entry
William M.C. Mason — Contribution of all right, title, and interest in and to the intellectual property described in Exhibit A (the "Contributed IP"), at an agreed initial Gross Asset Value of $[____].
4c · Add to §5.1
The Members agree that the initial Gross Asset Value of the Contributed IP is the amount stated on Schedule I, that such value shall be credited to Mason's Capital Account as of the date of this Agreement, and that no Member shall have the right under subsection (i) of the definition of Gross Asset Value to require appraisal or redetermination of that value.
4d · Attach an IP assignment as Exhibit A
The agreement transfers the IP by reference without describing it. Counsel should prepare a schedule identifying Averase and any associated code, marks, and domains, and a separate assignment instrument.
4e · Stretch item — raise it, expect resistance
Stretch
In the event the Company is dissolved, or Mason ceases to be a Member pursuant to a Buy-Sell Event arising under Section 9.1(e) or 9.1(g), the Company shall grant to Mason a perpetual, irrevocable, royalty-free, worldwide license to the Contributed IP as it existed on the date of contribution.
This is the single provision that would most change Mason's downside. It is also the one the other two are most likely to refuse, since it weakens the asset they are paying for. Worth asking for early so it can be traded away for items 1 and 3.
5 Valuation standard and leaver terms
5a · Add to §9.5
Each appraisal under this Section shall determine the fair market value of the Company as a going concern. The value of a Withdrawing Member's Membership Interest shall be that Member's pro rata share of such value, determined without discount for minority interest, lack of control, or lack of marketability, and without control premium. Each appraiser shall be a qualified business appraiser holding an ASA, ABV, or CVA credential, or equivalent.
Absent this, three appraisers can produce three very different numbers, and the marketability discount alone can move a minority interest by a third or more.
5b · Split §9.6 by cause
The purchase price shall be payable as follows:
(a) Where the Buy-Sell Event arises from a Member's death, disability, incompetency, or any cause other than one described in subsection (b), thirty-three percent (33%) in cash at Closing, with the balance financed over three (3) years in equal quarterly payments of principal and interest, bearing interest at the prime rate published in the Wall Street Journal on the date of Closing plus two percent (2%).
(b) Where an arbitrator has determined under Section 9.1A that the Withdrawing Member committed fraud, willful misconduct, misappropriation of Company funds or intellectual property, or a knowing violation of Article XI, twenty percent (20%) in cash at Closing, with the balance financed over five (5) years at the prime rate, and the Company may offset against such payments any damages awarded to it.
The current terms treat a deceased founder's estate and a genuine bad actor identically. This separates them, and makes the harsher terms available only after the neutral finding added in item 1.
6 Deadlock — read this before asking for it
The problem. "Deadlock" requires an exact 50/50 tie, which 33.34 / 33.33 / 33.33 cannot produce. §4.7's mediation and shotgun buy/sell is the only dispute-resolution machinery in the agreement, and it cannot fire.
The tradeoff. Fixing the definition activates a shotgun clause, and shotguns favor whoever can write the bigger check. Mason contributed IP rather than cash; Rodrigues and Keats contributed cash and can pool it. Broadening "Deadlock" may hand them a tool Mason cannot match.
Option A · Fix the definition, keep the shotgun
"Deadlock" means any matter proposed in writing that requires the approval, consent, or affirmative vote of the Members and that has failed to receive the required approval at two consecutive meetings or written consent solicitations, held or made not less than thirty (30) days apart.
Option B · Fix the definition, drop the shotgun
Same definition, but replace the buy/sell in §4.7(b)–(d) with escalation to binding arbitration on the underlying business question. No one gets bought out; the impasse gets resolved.
Option B is better for Mason on these facts. Option A is more conventional and easier to sell to the other two. Worth deciding deliberately rather than by default — and worth pricing, since agreeing to Option A is a real concession Mason can trade for items 1 and 3.
7 Disability
7a · Amend the Economic Interest Transfer provision
Change "a period of 60 days or more" to a period of one hundred eighty (180) consecutive days or more, and replace "from which the Member is not expected to meaningfully recover" with:
and from which the Member is not expected to recover sufficiently to resume such participation within twelve (12) months, as determined in writing by an independent licensed physician selected by mutual agreement of the affected Member (or such Member's legal representative) and the other Members.
7b · Note for counsel
Immediate loss of both Member and Manager status on disability, with automatic conversion to a non-voting economic interest, is severe — and combined with §4.8(a) it lands only on Mason, since the other two have no participation obligation to fail. Worth asking whether any of this should apply to a Member with no minimum hours requirement at all.
8 Amendments conflict
The problem. The Miscellaneous amendments clause permits amendment by the Manager plus a Majority in Interest. §3.2(c) requires unanimity. Both cannot be true, and the looser reading would let a two-member majority amend away the §3.2 protections.
Replace the Amendments section
No provision of this Agreement or the Articles of Organization may be amended, nor shall any waiver of any term of this Agreement be effective, unless in writing and signed by all Members. For the avoidance of doubt, this Section controls over any other provision of this Agreement addressing amendment or waiver.