Think of an LLC operating agreement for a limited liability company as a prenuptial agreement for your business. It provides owners a detailed framework for various business and functional issues that may arise. An operating agreement can be handy in defining the roles and responsibilities of its members, allocating ownership percentages, explaining management procedures, establishing annual meeting guidelines, and setting forth details regarding change in ownership or winding up of the LLC. By talking with your members and creating an operating agreement with an attorney, you’ll avoid costly and time-consuming disputes as your business grows.
Some states require LLCs to maintain an operating agreement. Other states have even more rules for LLCs. Either way, an operating agreement facilitates compliance by jam-packing all of those rules, and your company’s adherence to them, into a single agreement.
Save money long term
A well-written LLC operating agreement should guide your company in the right direction. As such, the price to pay to have an attorney draft you an agreement can end up being a fraction of what can happen by not implementing an operating agreement.
You get much more
Because an LLC operating agreement delves into the heart of your operations, hiring an attorney to draft your operating agreement will usually lead to helpful hints on other matters.
The state governing my LLC does not require an operating agreement, should I still have one drafted?
Absolutely. An operating agreement can be extremely effective in helping you run your business. Aside from it serving as a rulebook for your company, having an operating agreement looks good in court. By having an operating agreement, you are signaling to the court that your LLC is indeed separate and apart from yourself. Also, without an operating agreement, an LLC must follow the default rules in its state for things like the allocation of profits and losses.
Should I purchase an operating agreement on a template provider website?
An operating agreement should be tailored to your LLC. The agreements found on these boilerplate websites are standardized and may leave out important terms specific to your LLC. An operating agreement should serve as your LLC’s playbook so it’s imperative for it to be custom drafted to address your company’s uniqueness.
What are some terms to include in an operating agreement?
It’s important to include the LLC’s purpose, the roles of its members (titles and day-to-day responsibilities), the person in charge of the LLC’s accounting, ownership interests, profit-sharing breakdown between the owners, voting rights of members, rules for meetings and voting, and rules for member withdrawal and dissolution.
What’s limited liability protection?
It’s the biggest reason why people choose to incorporate their businesses. It provides owners protection from their personal assets against creditors’ claims. As long as the owners truly treat their business as a separate entity, they retain such protection.
Can members change the terms in an operating agreement?
Yes, an operating agreement can be amended if every member agrees and signs the updated operating agreement.
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