Back to Basics – the Operating Agreement

nIf you formed an LLC, you should create an operating agreement to establish the overall rules for how the members will manage the company. Not all states require an LLC to have an operating agreement, but it is highly recommended to create one to outline the operational and financial arrangements among members as well as the provisions for running the company.

Here’s a general overview of what an operating agreement should include:

    1. Organization: Details about when the LLC was formed, its members, and how ownership is structured.
    2. Management and Voting: Specifies whether the LLC is managed by members or managers and outlines the voting rights and responsibilities.
    3. Capital Contributions: Describes the members’ contributions to the LLC and outlines how additional contributions will be handled.
    4. Distributions: Explains how the profits and losses are divided among the members.
    5. Membership Changes: Covers the procedures for adding or removing members, as well as members’ rights to transfer or sell their ownership interest.

    6. Dissolution: Outlines the conditions under which the LLC may be dissolved and how the assets will be distributed upon dissolution.
    7. Rules for Meetings and Votes: Defines how and when meetings are held, including how members are notified, the quorum required for decision-making, and how votes are counted.

While these elements are commonly included, the specifics can vary widely based on the needs and preferences of the business and its owners. Some states have default rules that apply in the absence of an operating agreement or when the agreement is silent on a particular issue. Therefore, it’s crucial to tailor the operating agreement to fit the specific circumstances of your LLC while ensuring compliance with state laws.

Consulting a lawyer who specializes in business and corporate law can provide guidance on creating an operating agreement that meets legal requirements and adequately protects the interests of all members involved.

Legal Disclaimer: The contents of this blog are provided solely for educational and informational purposes and reflect the legal standards and interpretations as of the date of publication. Please be aware that the legal landscape is evolving rapidly, and, as such, the information contained herein may become outdated over time. This blog does not constitute legal advice, nor does it establish an attorney-client relationship. Readers are advised to consult with a qualified legal professional for specific legal guidance.

Sasha Hodder

Hodder Law

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