How to Create a Comprehensive Operating Agreement for Companies in Los Angeles
Finally, you decided to incorporate a business in Los Angeles3 min read
Finally, you decided to incorporate a business in Los Angeles. After submitting the Articles of Incorporation to the Secretary of State, forming your corporate operating agreement is the next logical step. An operating agreement is one of the most important documents you’ll create for your business. It sets the parameters for how your business will be managed and provides an outline of the rights and responsibilities of each member.
For corporations in Los Angeles, an operating agreement is an issue that should be taken seriously by any company seeking growth, profitability, and sustainability. Step-by-step, here’s what you need to know to create an effective operating agreement that works for your business.
Define the Basic Elements of Your Operating Agreement
Your corporate operating agreement enshrines the terms of running and governing your business, and it also brings clarity about how your business is organized. It's important to cover all the basics and ensure each of the critical elements is fully understood by all parties. This of course includes the formation of the LLC, ownership structure, voting rights, distribution of profits and losses, and outlines how changes can be made or proposed.
To make sure your operating agreement is legally sound and effective for its duration, address the following items:
Name and Address of the Company
This is the first element and in most cases will be the same as the information you provided in the Articles of Incorporation. It identifies the company’s name and where it is registered and will help other parties identify that this is a legally formed LLC.
Members' Rights and Responsibilities
The operating agreement should include the rights and responsibilities of each LLC member, such as their roles in decision-making, any allocated profits or losses, buy/sell agreements, and additional capital contributions. This helps to ensure that each member has overall clarity about their involvement in the running of the business and how the business will manage their personal finances.
Foreign and Domestic Regulations
An important part of an operating agreement is accounting for any foreign and domestic regulations applicable to your type of business. For example, some companies may need to track and report how assets and income are being distributed, while others may need to consider import or export taxes. In any case, compliance should be addressed in the operating agreement.
Member Exit and Disqualification
This stipulates the process of what will happen in the event a member leaves the LLC or is removed for any other reason. Any restrictions that apply to members during their participation and for any predetermined length of time after that should also be included. This helps secure the LLC’s interests while allowing for the freedom of exiting members.
The operating agreement should also address the taxation details of the LLC in order for it to remain compliant with local and federal laws. This includes how taxes are filed, when taxes are due, and how income is distributed among members.
Conflicts and Disputes
In the event that disputes arise, your operating agreement should define the procedures and protocols to ensure that any resolutions are reached in an amicable fashion. This may outline conflict resolution methods, introduce mediators if necessary, and should feature a provision for arbitration of the parties can't reach a resolution.
The duration of the agreement should also be defined in the operating agreement so all parties are aware for how long the agreement is binding. Periods of several years are common and should be considered when drafting the agreement.
Get Professional Support
Once all of these elements have been covered, it's important to turn to a professional adviser to ensure that the operating agreement is legally compliant. An attorney who understands the principles and regulations relevant to Los Angeles business is in the best position to provide you with the necessary guidance.
At Upcounsel, you can find experienced lawyers who are knowledgeable about the regulations and business protocols applicable to Los Angeles corporations. Whether you need a one-time consultation or an entire freelance legal department, Upcounsel can provide you with the support that you need in a cost-effective and time-efficient way. Get in touch today to discuss your operating agreement and how to take your business to the next level and succeed in the competitive Los Angeles business landscape.