| The Operating Agreement LLC is the most important | | | | While an operating agreement can be very simple or |
| document after the formation certificate for an LLC | | | | very complex, there are a few matters that should be |
| business. In this agreement, ownership is established in | | | | addressed in every one of them. |
| the business and this document sets forth the rights | | | | The first is to have a clear structure for how the |
| and responsibilities of the owners. | | | | limited liability company is owned. Ownership disputes |
| This document also puts in place an operational | | | | are one of the most litigated issues in small business. |
| structure which is very important because it states | | | | By having proper ownership provisions in the governing |
| how the business takes actions and operates on a | | | | documents, these can be avoided. |
| daily basis. | | | | Second, there should be a clear method of how the |
| Every member, manager and officer must gain a | | | | LLC business becomes authorized to transaction |
| practical understanding of how the business will be | | | | business. There are two general operational structures, |
| managed. If the specific matters are set forth properly | | | | member managed and manager managed. With |
| in an operating agreement, everyone will be on the | | | | member managed, the owners, called members, are |
| same page and this will prevent later problems and | | | | active in managing the business. With manager |
| misunderstandings. | | | | managed, there is a separate governing body called a |
| The limited liability company laws provide some default | | | | Board of Managers. Owners only have management |
| rules that apply in the event that an operating | | | | authority if they are elected to serve as a manager. |
| agreement is not adopted or one does not address a | | | | After a structure is determined, voting requirements |
| specific issue. However, it is never recommended that | | | | need to be spelled out in the document. Many |
| you rely on the default rules of your state. Many of | | | | businesses require that owners holding a majority of |
| them are not fair and do not make sense in a real | | | | the ownership need to approve major business |
| business setting. | | | | decisions, but this percentage can be higher or lower |
| The better method is for the stakeholders in your | | | | based on each situation. |
| business to get together and determine a set of rules | | | | Third, an operating agreement LLC should address |
| that makes the most sense given your particular | | | | distributions which is when an LLC is authorized to |
| situation. One great thing is that the law acknowledges | | | | distribute profits of the business out to its members. |
| that there is no one size fits all solution to how a limited | | | | This typically requires a vote by the members. |
| liability company can be operated. As a result, owners | | | | However, some businesses will create provisional |
| have great flexibility to determine what rules and | | | | limitations when it is important for a business to |
| limitations apply to their business. | | | | conserve capital to grow or others will require |
| 3 Major Business Issues to Address in an Operating | | | | mandatory distributions. |
| Agreement LLC | | | | |