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Making a LLC Operating Agreement
An LLC Operating Agreement describes the operating rules of a Limited Liability Company. It outlines the daily operations as well as what happens if a conflict arises or a member needs to leave the business (by choice or for other reasons). Member details, such as their duties and contributions, are also included in the agreement.
Although you're able to make an Operating Agreement at any time, it's often best to make one at the very beginning to help guide all business decisions. An LLC Operating Agreement can be for a single-member or multi-member LLC.
An LLC Operating Agreement defines how your company is to be run. It outlines routine business processes, describes how disputes are resolved, documents member duties and contributions, and more. A well-defined LLC Operating Agreement can help your business run smoothly and provides an action plan for avoiding potential conflicts.
Certain states, including Delaware, California, New York, Maine or Missouri, require you to have an LLC Operating Agreement. The guidelines vary by state, but even if you are not legally required to have one, it's always a good idea to make a written agreement outlining business operations.
Articles of Organization and Operating Agreements are both critical documents that relate to starting an LLC, but there are a few key differences between the two. Articles of Organization (also called Certificates of Formation) are an LLC formation document filed with the state to register your company as a legal business entity. If you form an LLC with Rocket Lawyer, we file this document on your behalf. An LLC Operating Agreement, on the other hand, is an internal document that outlines how the business will be run.
An Operating Agreement can be lengthy and full of important details, so being organized in advance can help greatly. To make an LLC Operating Agreement, you'll need to have the following details available:
Customizing your LLC Operating Agreement online is easy. You simply answer the questions asked, and Rocket Lawyer will automatically generate the Operating Agreement for you with the required legal language for your state. If you don't have all of the information that you need, or if you need to discuss certain details with other LLC members, you can always skip questions, and finish your document later.
Generally speaking, you do not need to make an LLC Operating Agreement for every state that you do business in. In most cases, you'll just want to write one for the state your LLC is registered in. If you operate multiple LLCs that are registered in different states, then you may need one for each company in each state. If you have questions about businesses you run in other states, ask a lawyer.
Your business should have both of these important legal documents. While they do have a bit of overlap, they serve different purposes. The Operating Agreement is intended to outline how the business is run. The Business Plan communicates other business information, such as market research, financial plans, product specifications, and funding needs.
While single-member LLCs do not usually need an Operating Agreement, it is recommended. An Operating Agreement can show how you plan to separate your own expenses from the business, it may help if you are seeking funding, it can be used to appoint someone to run your business while you cannot, insurance companies may ask for it, and it can be used to define rules specific to your business.