LLC Partnership Agreement: Everything You Need to Know
An LLC partnership agreement is written by the owners of an LCC and lays out plans and provisions for the company.3 min read
Intro to LLC Partnership Agreement
An LLC (Limited Liability Company) is a type of business that helps to protect owners and member from liabilities, hence the name. This type of company is structured similarly to a corporation, but avoids some of the restrictions and tax issues that can come with a corporate structure.
An LLC partnership or operating agreement is used to define the operating terms of the company as well as to protect the legal rights of members.
A partnership agreement is a great way to start any business as it lays out company policies and plans from the beginning.
Partner or member responsibilities are defined in an LLC partnership agreement, and the plans for structure and management are laid out.
Having clearly-outlined responsibilities in a written document can help prevent disagreements in the future.
Some aspects of an LLC startup can be exciting, like the choosing of a name, making decisions about services or products, and planning for growth and success.
Other aspects are less fun and exciting like writing out the partnership agreement. Even though it's not as fun, this is still an important part of starting a business.
Most state laws don't necessarily required filing of these documents, but they should still be completed before entering into such a huge venture as building a company.
LLC Operating Agreement
Specific details in these agreements are going to depend on the size of the company, tax issues, management structure, investor and member numbers, and profit sharing. If an LLC has more than one member, the operating or partnership agreement acts as a contract that the members are bound to.
Key details included in an operating agreement include:
- List of owners/members.
- List of managers (members or otherwise).
- Plans for profits.
- Plans for problem solving.
The three main reasons to create an operating agreement, even if it's not a requirement in your state, are:
- To define the control of your business yourself, rather than defaulting to state laws.
- To clearly define your company as a limited liability type, and therefore protect members from financial liabilities.
- To help present future disputes among members as everything is clearly laid out.
Any company or partnership is wise to create a formal and written agreement between the founding owners to prevent future issues.
Once a partnership agreement is written and signed, members are legally bound to its stipulations and provisions.
An LLC partnership agreement should be written and signed before the actual running of the business begins. It can cause problems and difficulties if this is done later.
LLC partnership agreements are also known as:
- LLC (or Limited Liability Company) operating agreements.
- LLC bylaws.
- LLC operations agreements.
- LLC setup agreements.
Partnership agreements are put in place to make sure that all owners, members, or partners agree on the main company issues and plans. This process can help members have important discussions about their visions or intentions for the company, the obligations for particular members, and their plans for large changes, like the loss of a member.
LLC partnership agreements should also state the basic information about the company including:
- Company name.
- Main operating address.
- Company type (LLC, LP, Corp, etc.).
- Company purpose.
These agreements can also protect members or partners from being unfairly-treated by other members and help resolve disputes with already agreed-upon plans for conflict resolution.
In the case that the LLC is dissolved, partnership agreements should lay out plans for how the assets and money will be handled.
LLCs can be owned and operated by one individual. The operating agreement for a single-member LLC will be very basic, as there is less potential for disputes and therefore fewer things to stipulate. A single-member LLC can claim to be a sole proprietorship with the IRS and be taxed accordingly, rather than taxed as a corporation or partnership, like a multi-member LLC would be.
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