LLCs and Operating Agreements

The document that defines how an LLC will be structured and operated is called an Operating Agreement. This document sets out the following key points (in addition to other administrative functions):

  • If the LLC is member-managed, manager-managed or managed by a select group of members
  • Whether or not the LLC elects the usage of more traditional management titles such as President, Secretary, etc
  • How managers or managing members are appointed or removed
  • Both the duties and responsibilities of the members or managers
  • Restrictions on ownership and transfer of membership interest
  • How the profits and losses are to be distributed amongst the members
  • What happens in the event of the LLC’s bankruptcy
  • The circumstances under which a member may voluntarily leave the LLC
  • The circumstances under which a member may be bought out by other members, voluntarily or involuntarily
  • How disputes between managers, members or both are resolved
  • The level of control managers have over day-to-day operations of the LLC, and when management actions will require pre-approval by the members
  • How the Operating Agreement may be changed
  • How members may leave and join the LLC
  • When an LLC may ask its members for additional cash or property contributions, and what happens when members cannot or refuse to pay

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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