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LLC Operating Agreement

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LLC Operating Agreement

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Learn more about LLC Operating Agreement

You've created your LLC, now what? One of your next steps is making your LLC Operating Agreement. An Operating Agreement is similar to Corporate Bylaws in that it documents the operations of the LLC. It outlines routine activities, member information, member duties and more.

  • You're currently forming your LLC and want to define operations.
  • You just formed an LLC and need to outline operations.

Limited Liability Company Operating Agreement, LLC Bylaws, LLC Operations Agreement, LLC Set Up Agreement, LLC Partnership Agreement

Operating agreements are long and include a large volume of detailed information. It is a good idea to get some assistance with forming this agreement. We offer templates suitable for any state and we walk you through the process of creating your LLC Operating Agreement step-by-step. We can also connect you with a lawyer in your area to review the final documents.

You'll save yourself a lot of time if you do some legwork prior to sitting down and making the document. An Operating Agreement can be lengthy and full of important details, so being organized in advance can help greatly.

Here is what you'll need:

Company basics
This includes the name of your company, formation date, primary business address, registered agent, business purpose and duration of the contract.

Member information
Names of members and contact information, member contributions, what happens if a member quits or dies, member responsibilities and voting procedures. If you own a single member LLC, see Single Member Operating Agreement.

Accounting
When the fiscal year will end, how records are kept and details about distribution.

Board of managers
How members can elect managers, duties of managers including required meetings, manager compensation, how they can be dismissed, duties and limitations of power.

Officers
In most cases a Chairman, Secretary and Treasurer are elected by the members. You may also choose Presidents or Vice Presidents. Duties are outlined in this document.

Fiduciary duties
Fiduciary means a person held in trust. In this case to the company. This section covers things such as non-competes.

Dissolution
Details about how the LLC may be dissolved.

Covered persons
Rights of covered persons, such as the release of certain liabilities. Duties of covered persons such as acting on the best behalf of the company and fiduciary duties.

State requirements vary. While your state may not require that you have an LLC Operating Agreement in place, at a minimum they will require Articles of Organization, which includes your basic business information. However, even if your state does not require an Operating Agreement you should have one, especially if you have more than one member. If you do not have an agreement in place, your company may be constrained by the default state rules, which may not be beneficial to your company. You may not need to submit your agreement to a state agency, but you'll need it if issues arise. If your company is audited by the IRS, you may need to share your operating and partnership agreements with auditors regardless of what state the business resides in.

Even if you are not required, you should define operations and agreements simply for conflict resolution purposes. LLC Operating Agreements when property formed help businesses avoid common problems such as what happens if there is a dispute about how the business is being run, if a member wants to quit, questions about the distribution of funds, or challenges with competition or non-disclosure issues. Every member should have a copy so that they can refer to it if they have questions about basic operations or what the procedure is for bringing up an issue to the board.

Members can create any type of rules they want; However, if you do not have an Operating Agreement your members may be subject to whatever the default state laws impose. Most businesses consider similar responsibilities. The first consideration it what portion of the business the member has an "ownership" of, usually defined as a percentage. Often this is proportional to their financial investment into the LLC. You'll also need to define profit and loss distribution in your Operating Agreement. Regarding actual duties, you will need to outline member voting rights and meeting responsibilities. It is also helpful if you figure out in advance how a member can leave the LLC by choice or by death.

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