How to Write an LLC

Knowing how to write LLC operating agreements is imperative if you plan to run this type of business. The agreement will clearly outline what members own, how the LLC will be managed, and other key legal matters. If not, the LLC may face issues with its operations and ownership team that could have been avoided. Unlike corporations, you won't need to file your LLC operating agreement with the LLC filing office or a state office unless you have explicit directions to do so.

Most LLC operating agreements have similar sections that are customized to meet your company's specific needs. Even if you have a single member LLC, go ahead and fill out an LLC operating agreement that outlines how your business will operate. This can serve as a guideline throughout the life of your business and will be handy to have if your business evolves to involve more members.

Business Information

First, make sure to start with the basic information about the LLC. This includes the name and the location of the LLC, any rented or purchased properties, and the name and address of the person designated as the LLC's registered agent. Write down the purpose of the LLC and more information about its operations.

Management Information

All businesses need to be managed either by business owners or managers that have been hired to do so. If the LLC is going to be managed by members, does this increase their share of ownership? Specifically identify which members manage the LLC and detail what this means in terms of day to day interactions.

If your LLC is going to be managed by someone whom you hire, it's important to detail this in your LLC operating agreement. Make sure to include:

  • The Title of the Manager

  • The Name of the Manager Hired

  • Job Duties

  • Compensation

  • Minimum Credentials

Member Ownership Structure

If you are operating the business as a single member owned LLC, you own 100 percent of the LLC. However, when you have multiple members, you must decide who exactly owns how much of the business. Use this section to explicitly state who owns what percentage and any stipulations that might exist around the ownership structure. Also note how the ownership structure relates to profits and responsibilities.

Tax Preferences

One of the major benefits of the LLC structure is the flexibility that it gives to businesses when it is time to file taxes. As a single member LLC, you are usually taxed as a sole proprietor, and other LLCs are taxed as partnerships. However, this doesn't have to be the case. You can elect to file taxes under an alternative structure, such as an S corporation. Detail how you plan to file taxes and under what circumstances this should change.

Contributions

In your LLC operating agreement, note who has contributed anything to the business. This could be:

  • Money

  • Time

  • Services

  • Space

  • Other assets

This should serve as an important record of who contributed what in terms of the business. It should also outline who can make additional contributions during what situations. Not only does this serve as a log, but it can also help determine if everyone is pulling their fair weight. Additionally, in the event of a buy out or buy-sell agreement, it can help clarify how much someone has earned.

Other Matters

You should also try to detail the following in your LLC operating agreement:

  • How to handle distributions for the LLC

  • How decisions will be made

  • How often meetings are required

  • What would lead to a dissolution of the LLC

  • What happens if a member dies

  • How you plan to handle amendments

What Is an LLC?

An LLC is a Limited Liability Corporation. Many businesses, whether owned by an individual or a group, are started as an LLC to limit business liability and to be seen as a larger company capable of handling bigger accounts. Depending on how the LLC is structured, the LLC may legally operate as a pass-through entity or as a separate entity.

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