Introduction to LLC Organization and Governance
Articles of Organization establish LLC’s existence. Operating Agreements guide business’s internal operations. It is essential to file Articles of Organization with the state, but highly recommended to create Operating Agreement for multi-member LLCs.
The Articles of Organization serve as a public record of an LLC’s establishment and operation within the boundaries of the law. The Operating Agreement is a private document that helps resolve disputes among the LLC’s members. While the Articles of Organization are required by state law to formalize an LLC, the Operating Agreement is advisable to provide clarity on the structure and functioning of the business.
- Articles of Organization typically include the LLC’s basic details such as name and address.
- Operating Agreement provides more specific details on management, voting rights, profit distribution, and operations.
Importance and Contents of Operating Agreements
Operating Agreements give LLCs the ability to govern their businesses according to their preferences rather than default state rules. It describes the economic and business arrangements of the LLC members.
- An LLC Operating Agreement is a legal document that outlines ownership and member duties of the Limited Liability Company. It allows customization of terms as per member needs.
- Operating agreements are similar to corporate by-laws or partnership agreements in multi-member LLCs.
Need and Purpose of Operating Agreements
Operating Agreement not required by law, but strongly recommended for all LLCs. It helps to prevent disputes and provides clarity in case of disagreements or changes in ownership.
Difference Between LLC Resolution and Operating Agreement
To clear confusion and avoid legal disputes, having a written record of decisions is essential. Banks may require an LLC resolution before allowing access to company funds. Resolutions and operating agreements are crucial documents to define and govern the company’s processes and decisions.
Litigation resolves disputes between parties in Court. An operating agreement will identify the proper forum. Members should consider their expectations for dispute resolution – whether they want negotiation before mediation, arbitration or litigation as the final binding process, and timelines for each step.
Managerial Resolutions are made by LLC managers, involving day-to-day operations, financial transactions, and other managerial responsibilities. Financial Resolutions cover matters related to finances such as opening bank accounts, loans, budgets, etc. Even when following procedures in the operating agreement, using a resolution serves as a formal record that the company followed the required procedures, especially for critical decisions with significant financial risks.