While an LLC operating agreement is not always required in some states, it is still a good idea to put one in place. After all, such an agreement will establish the guidelines for the management and operation of the LLC. Setting down the details of your LLC operations can be critical in its efficient management, scalable growth, and sustained strength.
What to Include in Your LLC Operating Agreement
The details included within LLC operating agreements can widely vary depending on a variety of factors. There remain, however, some key provisions that you should include in yours. For instance, you should be sure to state the name of your LLC as well as the addresses of the LLC’s initial registered office and its principal business office.
You should also be sure to include a statement of intent in your operating agreement. The statement of intent is, essentially, a statement that the operating agreement was created in accordance with the relevant state laws and that the LLC itself will officially come into existence once the official formation documents have been filed with the state. Additionally, your LLC operating agreement should have your business purpose stated within it. This statement of business purpose should articulate the purpose and the nature of your business.
There are also a number of specific provisions you should include in your LLC operating agreement that speak to the rights and responsibilities of LLC members, as well as how new members can be added, and what happens if a member leaves the LLC. Your operating agreement should avoid being vague and be specific when possible, but should also allow for scalability and growth as well as changes to the LLC. For instance, you may want to take on more partners at some point. To provide for this possibility, be sure to outline how to bring new partners into the LLC. You should also consider detailing how profits and losses will be distributed as well as the duties and compensation structure of LLC members.
Taking care to develop an LLC operating agreement that reflects how you want your LLC to run is worth the time and effort investment. It gives you a level of control over your business that you would otherwise miss out on. Did you know that without an operating agreement in place, state law will dictate a number of key aspects of your LLC? Furthermore, an operating agreement can help preserve the liability protection aspect of the LLC. LLC operating agreements give more credibility to the LLC structure. Without the agreement, LLC owners could be held personally liable in the event that it looks like they are operating a sole proprietorship or a partnership under the guise of an LLC. Furthermore, putting a written operating agreement in place makes the details of the business clear to LLC members which, in turn, sets expectations and minimizes the potential for misunderstandings and disputes down the road.
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