What is an operating agreement?
An operating agreement is a contract between the members of an LLC documenting how the organization will be run and how key business decisions are to be made, such as how compensation is distributed, the operation of essential procedures and how the company wishes to be taxed. .
Operating agreements must state the management structure chosen by the LLC and describe the distribution of administrative rights and responsibilities among members. Having an LLC’s structural designation and accompanying details documented in writing can be especially important if and when legal issues or other disputes arise.
Operating agreements do not need to be filed with a state like articles of incorporation do. Having an operating agreement is however highly recommended. The operating agreement should be updated as necessary as the business grows. Operating agreements can be particularly important in the event of member disputes or legal issues. Without one, the corporation operates under the default provisions of state LLC law.
How do I create an operating agreement?
Trying to write an operating agreement from scratch without legal training is not recommended. Instead, follow a free template or step-by-step instructions found online at law libraries or legal aid websites, or explore sites with business building resources such as Legal Zoom or RocketLawyer. . These offer many services specifically aimed at LLCs, including interactive programs providing semi-generic operating agreements based on a series of questions.
LLCs with unique considerations, above-average complexity, or more than two members should consider seeking professional legal help. Although this is the most expensive option, the cost of starting an LLC is still lower than that of a corporation and the money spent to obtain legal guarantees is generally money well spent. .
Comments are closed.