LLC Operating Agreement
An LLC Operating Agreement is a contract between the members of an LLC. This contract outlines the rules and regulations that govern business decisions. In this article, we will outline what an LLC Operating Agreement typically includes and why creating one may be advantageous for you.
LLC Operating Agreement vs. Articles of Organization
It is important not to confuse an Operating Agreement with Articles of Organization. Articles of Organization are public documents that you file with your state to legally create your Limited Liability Company. It will outline basic information about your LLC such as the Business name, a list of members, location, contact information for the business, and information for the statutory agent.
On the other hand, an LLC Operating Agreement is a private document that creates an in-depth outline of the terms of handling the management and operations of the business.
What an LLC Operating Agreement Includes
Your Operating Agreement should include specifics on the functionality of your Limited Liability Company and greater details on your LLC setup. For example, if there are multiple members in your LLC, you can outline everyone’s percentage of ownership, their voting rights, and their powers and responsibilities. Further, if your LLC is manager-managed you can detail the authority and duties the manager will retain.
Additionally, you will lay out the division of profits and losses between the LLC members. As well as how to handle buying out a member due to death or leaving the business. Finally, you will outline the process of when and how to dissolve the LLC.
Why You Should Create an LLC Operating Agreement
There are 3 main reasons why you should create an LLC Operating Agreement. These are:
- Protect Your Limited Liability
Executing an Operating Agreement will help further separate you and any of your partners from the LLC entity. This will further reduce your liability and protect your personal assets from business issues.
- Clarify Verbal Agreements
Often business partners discuss how they plan on handling business matters but fail to ever put it in writing. This can leave you open to issues due to miscommunication and misremembrance. By putting conditions into writing, it will give you something to refer to in the event of conflict or decision-making issues.
- Protects Your Agreement in Your State
If you do not have an Operating Agreement and internal issues arise, state laws will dictate how matters are handled. An Operating Agreement will allow you to specify how you would like issues to be handled outside of generic state proceedings.
Creating an Operating Agreement
If you think an Operating Agreement would be helpful in the management of your LLC, contact a legal professional that can draft one for your needs.
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