Limited liability companies (LLCs) are becoming the preferred entity selection for many new businesses. LLCs offer owners flexibility that other business entities do not necessarily provide. An LLC’s operating agreement is critical for these purposes.
An operating agreement is the document that controls an LLC. It is an agreement between the LLC and its owners. An operating agreement is to an LLC as a set of bylaws are to a corporation or a partnership agreement is to a partnership.
Many states do not require LLCs to have an operating agreement. Therefore, many business owners neglect to draft one. Whether or not it is required for your business, it is very important to have an operating agreement.
As mentioned, one of the major benefits of forming an LLC is the flexibility they offer. LLC owners have an abundance of latitude in determining the manner in which they want the company to be run. However, if the LLC does not have an operating agreement, it will be run in accordance with the state’s default rules.
Not only does an operating agreement protect the limited liability status of an LLC, it also helps prevent any financial and management disputes, and ensures that the LLC is conducted the way you want.
Below is an inexhaustive list of items that should be addressed in an operating agreement.
At Merchant Law Firm we can help in drafting operating agreements, reviewing existing operating agreements and amending or revising operating agreements.