How to write an Operating Agreement

An operating agreement is a crucial document for limited liability companies (LLCs) as it outlines the structure, rules, and regulations governing the company's operations and the relationships between its members. While there is no universal template, an operating agreement typically includes the following elements:

  1. Title and Introduction:

    • Clearly state that this document is the operating agreement for the LLC.
    • Include the full legal name of the LLC and the date the agreement is established.
  2. Formation and Business Purpose:

    • Specify the state of formation and provide a brief description of the business purpose of the LLC.
  3. Identification of Members:

    • List the names and addresses of all members (owners) of the LLC.
    • Specify the percentage of ownership for each member.
  4. Capital Contributions:

    • Detail the initial contributions made by each member, whether in cash, property, or services.
    • Outline any additional contributions required or allowed in the future.
  5. Allocation of Profits and Losses:

    • Specify how profits and losses will be allocated among the members.
    • You can choose to allocate based on ownership percentage or through a different arrangement agreed upon by the members.
  6. Management and Decision-Making:

    • Clearly outline how the LLC will be managed – either member-managed or manager-managed.
    • Define the decision-making process, including voting rights and procedures for major decisions.
  7. Transfer of Membership Interests:

    • Outline the rules for transferring membership interests, including any restrictions or requirements.
    • Include a process for approving new members.
  8. Distributions:

    • Specify how and when profits will be distributed to members.
    • Outline the criteria and timing for making distributions.
  9. Dissolution:

    • Describe the process for dissolving the LLC, including the distribution of assets and any other relevant procedures.
  10. Buy-Sell Provisions:

    • Include provisions for the buyout of a member's interest in the event of death, disability, retirement, or other circumstances.
    • Outline the valuation method for determining the buyout price.
  11. Taxation:

    • Address the LLC's tax classification and any other tax-related provisions.
    • Consult with a tax professional to ensure proper tax treatment.
  12. Indemnification and Liability:

    • Clarify the extent to which members will be indemnified against liabilities.
    • Define the limitations of member liability.
  13. Amendments:

    • Include a provision for amending the operating agreement and the process for doing so.
    • Typically, amendments require the consent of a specified percentage of members.
  14. Governing Law:

    • Specify the state law that will govern the operating agreement.
  15. Signatures:

    • Include spaces for all members to sign and date the operating agreement.
    • It's recommended to have the document notarized for added formality.

While you can draft an operating agreement yourself, it's advisable to seek legal assistance to ensure it complies with relevant laws and meets the specific needs of your LLC. Each state may have different requirements and regulations, so consulting with a professional can help tailor the document to your circumstances.

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