LLC Operating Agreement
An LLC Operating Agreement is also known as:
- Operating Agreement
- Limited Liability Company Operating Agreement
- LLC Agreement
- Operating Agreement for LLC
What is a Limited Liability Company (LLC)?
An LLC is a type of business structure formed by filing the proper paperwork with your state. Like the name suggests, an LLC limits the liability of its members, meaning they are not personally responsible for the company's debt or obligations.
What is an LLC Operating Agreement?
An LLC Operating Agreement is a legal document that establishes the rights and responsibilities of each LLC member and provides details about the LLC's internal management, including how decisions are made, when meetings are held, how new members are admitted and more.
Who is considered a member of an LLC?
A member of a limited liability company is an individual or corporation that owns part of the LLC. He or she must have provided a form of capital contribution (money, services, property) in exchange for a percentage of ownership interest in the company.
Does an LLC have shares of stock like a corporation?
LLC's don't have shares like a corporation, but rather assign a percentage of ownership according to each member's capital contribution. Regardless of the amount of members in an LLC, ownership percentages should always add up to 100%.
What does an LLC Operating Agreement include?
The LLC Operating Agreement has information about the LLC itself, including the name, type/description of services, how long the LLC will be in business, and office address.
The LLC agreement includes the following information for each member:
- Name and address
- Membership class
- Capital contribution
- Percentage of ownership
- Share of profits and losses
An operating agreement also addresses whether a member can voluntarily leave the LLC, if they can compete against the LLC after leaving, how assets are distributed if the company dissolves, and how new members are admitted.
An LLC Operating Agreement specifies how the company will be managed, including how decisions will be made and if actions require a majority of members to vote in favor of decisions (referred to as unanimous consent).
Regular meetings are part of an LLC's obligations, which is why details regarding where and when meetings will be held are important to include in the operating agreement.
An LLC can be managed either by its members or by a designated manager.
Financial and administrative aspects of an LLC are defined in the operating agreement, including the LLC's accounting methods, fiscal year, annual report details and more.
Other Details in an LLC Agreement
The operating agreement may also specify who has the ability to sign contracts on behalf of the company and methods used to resolve disputes.
Why should an LLC use an Operating Agreement?
By creating and agreeing to all the terms laid out in an operating agreement, members find there are fewer discrepancies in how business is conducted or how profits and losses are distributed.
An LLC Operating Agreement also allows members to specify their own rules for the company, and will serve as an important reference tool if a member decides to withdraw, the company dissolves, or a new member is admitted.
What is the difference between a partnership and an LLC?
A general partnership and an LLC are similar but members of an LLC have limited liability for the debts and obligations of the LLC. In a general partnership, partners have unlimited liability for the debts and obligations of the partnership.
Can members amend (change) terms in the LLC Operating Agreement?
Yes, an operating agreement can be amended if every member agrees and signs an amendment.
Frequently Asked Questions:
LLC Operating Agreement FAQ