Don’t leave home (or run an LLC) without this stuff!
November 17, 2014 - Posted by: admin - In category:
If you have an LLC, you really should have a solid operating agreement that sets forth the rules and parameters to govern the ownership and operation of such LLC.
Imagine a situation where you are headed into the wilderness for a lengthy camping trip. You would not only want to have a pack to take with you, but you would also care VERY much what was contained in that pack. In a similar manner, owning and operating a business, including through the legal entity of an LLC (a limited liability company), can sometimes be an adventure to say the least and the business world can likewise be compared to a wilderness. Therefore, your LLC should have an accompanying operating agreement that clearly provides the rules and guidelines for the ownership, management and operation of your business.
Below are 5 key provisions that your LLC operating agreement SHOULD have, regardless of whether you are running a small family business or a large enterprise. Your operating agreement should address and clearly answer these questions and considerations:
1. Ownership/Revenue Allocation
a. Who owns the LLC?
b. What percentage is owned by each person?
c. How are profits and losses of the company allocated?
a. Who are the officers and managers of the LLC?
b. What specific rights and duties are given to such officers and managers?
c. Can such officers and managers be removed from their positions and if so, how?
3. Withdrawal of Members
a. Can a member choose to remove himself/herself from ownership and/or management in the future?
b. If a member is permitted to withdrawal, what is the process for this?
c. Can the exiting member sell his/her ownership interest to anyone, or must such member give a right of first refusal to remaining members?
4. Resolution of Disputes
a. How will disagreements and disputes be resolved in the future?
b. Do you want to reserve the right for parties to file lawsuits and have a court resolve matters through litigation, or would you prefer to require arbitration or mediation to resolve differences?
a. How will the company be dissolved and terminated when the time comes?
b. What is the process for such a dissolution and who gets remaining LLC assets and liabilities at such time?
There are many other things that a good operating agreement will contain and address, but those are a few key considerations that you should absolutely have in your operating agreement. Of course, each business arrangement is unique, as are the people involved in the same. For this reason, a cookie-cutter form downloaded from the internet most likely will not be appropriate for your business, your LLC and your situation. You should consider these basic legal framework items, such as a customized and complete operating agreement, as part of the costs and expenses of establishing and running a business. Otherwise, if such things are neglected, you may find out later, to your great astonishment and alarm, that you lacked one of the important foundational elements for your company and the results of building a structure (whether large or small) without a proper foundation are never good.