In the realm of small business operation and management, there are numerous rules and regulations that one needs to understand and adhere to. The very crux of these, specifically for a Limited Liability Company (LLC), is the operating agreement. This legal document, although seemingly daunting with its complex structure and verbiage, is essential for the seamless operation of your LLC. It specifically outlines the functional and financial decisions of the business, drawing a parallel with corporate bylaws.
Over the years, I have observed a divergence in the understanding of this document among my clientele. Some individuals are well versed in its significance and purpose, treating it as a pivotal aspect of their business strategy. On the other hand, many are unfamiliar with its intricacies, unsure about its indispensable role in the foundation of their enterprise. Regardless of one's preliminary understanding, it is crucial to comprehend the pivotal part the operating agreement plays in structuring and strategizing the business operations.
The seemingly intricate legal terms and old-fashioned language must not deter one from recognizing the operating agreement's merit. Though it may initially appear as a complex labyrinth of law, this document is the blueprint for your entrepreneurial journey. Acknowledging this document not as a formality but rather as a stepping stone to the establishment and prosperity of your business.
What’s in an Operating Agreement?
Just like your estate plan that needs to be tailored for you and your family, an operating agreement should be drafted for each LLC. While you can generalize a lot of terms about an LLC, each LLC is different and requires customization in its documents. Beyond the specific nuances that your LLC's documents require, there are some common issues to address in your operating agreement, including:
- Purpose of the LLC
- Day to Day Operations
- Who are the members
- Duties of the members
- Management of the LLC
- Contributions of the members
- Process for a Member leaving the LLC
- What happens if a member gets divorced
- What happens if a member dies
- Liabilities of the members
- A dissolution process to close the LLC
There are many resources available to learn more about an LLC operating agreement. The library is full of books for business owners. Your state’s Secretary of State likely has a section of their website devoted to LLCs and their operating agreements. And of course, for a small fee, there are any number of websites that will mail merge your information into an outdated form. But the best option is to sit down with a lawyer and discuss your company and what its needs are.
Do I Need a Business Attorney?
Now is a good time to get up to date on your LLC documents, so if you'd like to discuss them further, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.