Operating Agreement for LLC: Everything You Need to Know
An operating agreement for an LLC is important when running a business. 3 min read
An operating agreement for an LLC is important when running a business. However, it's important to understand what this is and how an LLC runs first. A limited liability company, or LLC, is a business structure that's formed when the correct paperwork is filed with the state. The advantage of this is it reduces the members' liability, which means they won't be personally responsible for any obligations or debts of the company.
Someone who owns part of a limited liability company is called a member. The member must have some form of capital contribution, such as property or money, to exchange for having part ownership of the company.
Does an LLC Have Shares of Stock Like a Corporation?
LLCs don't have shares like corporations do, but instead, give a certain percentage of ownership to each member based on capital contribution. No matter how many members are in the LLC, the percentages of the ownership must always add up to 100 percent.
What is the Difference Between a Partnership and an LLC?
A limited liability company and a general partnership are similar in many ways. However, LLC members have limited liability for the obligations and debts of the LLC that a general partnership doesn't have. Partners in a general partnership have unlimited liability for the obligations and debts of the partnership.
What is an LLC Operating Agreement?
Corporate bylaws and an operating agreement are similar because they both state what the LLC's operations are, list member information, what the duties of the members are, and more.
There are many names for an LLC, including, but not limited, to the following:
- LLC Partnership Agreement
- Operating Agreement for LLC
- LLC Operations Agreement
- LLC Bylaws
- Limited Liability Company Operating Agreement
- Operating Agreement
It's not required to have an LLC operating agreement in any state, but it's smart to have. This is a legal document that sets the rules for the Limited Liability Company. The operating agreement states who manages the LLC, how the profits will be dealt with, who owns the LLC, and how many future problems will be solved if they should arise.
This agreement lets the members state the rules they want for the company, which will be essential in case a member leaves, the company falls apart, or a new member joins. The operating agreement states the rules for the LLC in the same way the articles of incorporation control how a corporation operates. What should be included in the agreement may vary depending on how many members there are, what the tax considerations are, and what the structure is like of investment, management, and sharing of the company's profits.
If there are multiple members in an LLC, the contract is considered binding between the members. This lets you set out working and financial relations between all members or business owners and between managers and members. If the LLC wishes to amend an operating agreement, each member must agree to and sign the amendment. The operating agreement isn't as important for single-member LLCs.
Items Needed for Making an LLC Operating Agreement
The company basics should be listed in the operating agreement. This includes the company's name, main business address, date of formation, the name of the registered agent, articles of organization, and business duration and purpose of the contract. The agreement should also list the members' names and contact information, their contributions, responsibilities, voting procedures, and what happens in the case a member dies or quits.
For the majority of LLCs, they will state that the company will continue until it gets dissolved due to state law or they decide to terminate it. When the limited liability company is formed for a certain purpose, such as selling commercial buildings, it may operate for a certain time.
The agreement also needs to state when meetings will take place, rules about when, where, and how the votes will get taken, how many votes are needed for an action to be approved, and how many members need to be there for a quorum. The original capital contributions, as well as their values, should be listed for every LLC member.
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