Key Considerations for an Operating Agreement Template
Creating An Operating Agreement: Essential For Businesses With Multiple Owners2 min read
It is customary for legal professionals to recommend strongly that for any business in the United States that has multiple owners, an operating agreement is an essential starting point and should be drawn up. In the case of a limited liability corporation, an operating agreement template is even more critical, as it serves to bind the shareholders safely within the bounds of their agreement. Therefore, if you are in Chicago and looking for counsel who understands local law, these are the top five things to consider when it comes to an operating agreement template.
1. How Ownership is Divided
The first thing you need to consider when drafting an operating agreement template is how the ownership of the LLC is being divided. This means that the language used within the agreement should be agreed upon by both parties to clarify what interest each of the shareholders has and how much their respective ownership stake is.
2. Rights and Duties
The agreement should also detail the rights of members and the duties of the LLC managers. Additionally, the rights of managers should also be defined in the agreement. By detailing the rights and duties of all parties involved, it will ensure that they act in accordance with the laws of the land and with the expectations of the other shareholders.
3. Division of Profits and Losses
The operating agreement template needs to include the division of profits and losses between the LLC members. This should provide a clear understanding of how profits are to be shared, which will help prevent any potential disputes later on down the line.
4. Transfer of Ownership
Transfer of ownership of the LLC is also something that needs to be clearly specified in the template. The new owner needs to be aware of who holds ownership, how much of a total ownership majority any one owner holds, and how to properly transfer ownership in the event that a shareholder needs to be replaced.
5. Voting Rights
Last but not least, the operating agreement template needs to clearly state the voting rights of the shareholders. Each individual shareholder should have the right to cast their own vote on matters and decisions that affect the LLC, and this should be explained in the agreement.
By having an operating agreement template in place, you will create a strong foundation for your business and protect all the owners from having their interests diminished by the other owners. It is important, therefore, to consider all of the above factors when seeking legal counsel for the drawing up of a template that is tailored to the specific needs of your business.