Clients who come in to discuss their LLC fall into two categories: (1) they have an operating agreement or (2) they’ve heard about an operating agreement and want more information about what it is and if they need one. As they are getting their business off the ground, they want to make sure they've got the right business foundation.
An operating agreement is usually used for an LLC. Not surprisingly, it normally defines the operations of the LLC. It’s a close cousin to the by-laws of a corporation. The agreement sets out the agreement between the members of an LLC. It’s a document that most clients who meet with me know they need, but they haven’t figured out the form that they are looking at. It’s normally filled with antiquated language and complex legal terms that are confusing.
What’s in an Operating Agreement?
Like an estate plan, an operating agreement should be tailored to each LLC. While you can generalize a lot of terms about an LLC, each LLC is different and requires customization in its documents. Some common issues to address are
- 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 And of course, for a small fee, there are any number of websites that will mail merge your information into an outdated form.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.
If you’re considering setting up an LLC, or if you’ve done it yourself but aren’t sure what to do next for your operating agreement, let's set up a Legal Strategy Session to discuss the process and some next steps to get your company’s documents in order.