Simple Operating Agreement for LLC: Everything You Need to Know
You can create it as soon as your LLC is considered active in your state when you have filed the paperwork to make it official.3 min read
2. Appointing a Registered Agent
3. Naming Your LLC
4. Operating Agreement: The Final Step
5. Benefits of Operating Agreements
A simple operating agreement for LLC can prevent many future problems when the LLC is formed. You can create it as soon as your LLC is considered active in your state when you have filed the paperwork to make it official.
What Is an LLC?
An LLC is a business structure created so that its owners can protect their personal assets in case the business is subject to litigation or the collection of debts. It requires forms to be filed with the state. Its owners are called members and may be either individuals or a corporation. Members must provide some type of contribution to the company's capital, such as property, services, or money, in exchange for an ownership interest.
Appointing a Registered Agent
No matter where you form your LLC, you will need a registered agent who is required to accept service of process for your business, which means that it receives important communications by USPS mail or email on the company's behalf and forwards them to the proper recipient.
The person or company appointed to serve as registered agent must have a physical address in the state where your business is formed. This may not be a post office box. The address must be provided when you file the articles of organization with the state, and should also be included in your LLC's operating agreement.
Naming Your LLC
Choosing a name for your LLC often requires some creativity. You want to pick a name that is descriptive of the type of business you will be forming, and also one that is catchy and easy to remember. When you have some ideas, you also need to make sure that there are no other businesses in your state that are registered with the same name. Most states offer a searchable database on the website of the agency that handles LLCs, such as the Secretary of State. You can search to make sure yours is still available.
Operating Agreement: The Final Step
The final step of creating your LLC is writing the operating agreement. Most states do not require you to submit this document to the Secretary of State or any other government agency, but it's still important and should be kept in a safe place.
Operating agreements are also referred to as LLC Bylaws, LLC Set Up Agreements, or LLC Operations Agreements. They lay out the rules for making decisions, holding meetings, admitting new members, and the right and responsibilities of all members. Without an operating agreement, your LLC will be forced to follow the default rules of the state, which might not benefit you.
Many operating agreements are quite long and include lots of information. Therefore, before you begin to write it, get organized and decide what items must be included. Operating agreements can be single-member or multi-member agreements.
Benefits of Operating Agreements
Although most states do not require operating agreements to be written and filed, there are many benefits to having one. They offer directions for adding new members or dealing with the loss of one. It also gives instructions for how the profits will be disbursed to members since it need not be done in accordance with the percentage of ownership each member has in the LLC. They help avoid many common problems arising from disputes.
There are several items that need to be included in an LLC operating agreement:
- Name of the LLC
- Certificate of Formation
- Registered office and registered agent
- The LLC's principal place of business
- The LLC's business purpose
- Termination date of the LLC, if any
- Voting rights of LLC members
- What happens to the LLC if a member dies or otherwise leaves
- The process for adding members to the LLC
- Members' original contribution amounts.
- How profits and losses will be divided among members and distributed
- Officers of the LLC, such as Chairman, President, Vice President, Secretary, and Treasurer
- How records will be maintained by the LLC
- Payment that the managers will receive, if any
- The LLC's accounting methods, annual report details, fiscal year, and other finance-related information
- Cash value of any assets that are contributed by a member
- Any other information the members consider relevant to business operations
The biggest problem faced by LLCs is usually a lack of communication between its members, especially in the company's beginning stages. Operating agreements help to mitigate this problem. There is no need to make the agreement more complicated than need be, but it should be thorough.
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