To form an LLC, you must register it with the state by filing articles of organization. Although operating agreements are not legally required, having a written one benefits LLCs by defining operations.
Written agreements outline rules like ownership percentage, capital contributions, management structure, member roles, voting procedures, and provisions protecting managers. Elements include equity structure, voting, records, liability protections, and operational restrictions.
Without agreements, courts rely on state default laws, possibly causing tax and management complications. Creating them ensures members understand roles and responsibilities.
Steps to Follow
First register your LLC, then make an agreement. Answer questions about structure and procedures. Have members sign to make it official.
- List members, managers, and ownership stakes.
- Define contribution amounts determining profit/loss and voting distributions.
- Describe management structure and decision-making processes.
- Include manager protection provisions from member pressure regarding decisions. Single-member agreements cost less.
- Modify by member majority vote. Outline daily operations like financials and functional decisions. Show who owns and works for the business and what they must do.
Should I write my own operating agreement?
A written operating agreement is a legal contract drawn up when forming a limited liability company (LLC). This agreement defines rules, processes, and provisions governing internal operations. Operating agreements differentiate LLCs from sole proprietorships, protecting personal assets. Written operating agreements are required in all fifty states to form an LLC.
If you want to establish your LLC, you need a written operating agreement outlining financial and functional decisions including rules, regulations, and provisions. Once signed by members, it acts as an official contract binding them.
Keep signed agreements instead of filing with the Secretary of State. Filling Out Your Agreement:
- List members and managers.
- Define ownership percentage and capital contribution amounts determining distribution of profits, losses, and voting rights.
- Describe management structure – whether member or manager managed, voting and decisions.
- Include provisions protecting managers from member pressure about decisions.
- Multi-member agreements cost more.
Once established, the agreement governs business details for financial decisions, functions, provisions, regulations, and more. To create one:
- Start an LLC.
- Understand state requirements.
- Answer simple questions.
- Have members sign to make it legal.
Core elements include equity structure, management, voting, liability/indemnification, records, protections, and restrictions.
Agreements benefit LLCs by defining operations even when not required in most states. Have a written one signed instead of relying on insufficient oral agreements.