Overview of Operating Agreements for LLCs
A written operating agreement is a legal contract drawn when forming a limited liability company (LLC). It defines internal operations rules, processes, and provisions, distinguishing LLCs from sole proprietorships and protecting personal assets. Agreements are required in all fifty states to establish an LLC.
Key Components of an Operating Agreement
- List members and managers
- Define ownership percentage and distribution of profits, losses, and voting rights
- Describe management structure, voting, and decisions
- Include provisions protecting managers from member pressure
- Note: Multi-member agreements cost more
Establishing and Maintaining an Operating Agreement
Filling Out Your Agreement:
- List members and managers
- Define ownership percentage and capital contribution amounts
- Describe management structure, voting, and decisions
- Include provisions protecting managers
- Note: Multi-member agreements cost more
Benefits of Written Operating Agreements
Operating agreements define LLC operations, even when not mandatory in most states. It’s crucial to have a written agreement signed by all parties rather than relying on oral agreements.