What Should be Included in an Operating Agreement for an LLC?
An operating agreement is a legal document drafted by lawyers that outlines the ownership and operational structure of a limited liability company (LLC). It is a key component of forming an LLC, as it serves as the foundation for your business. It also helps to protect against any potential disputes that may arise among its members. Here are some key items to include in your LLC's operating agreement.
The operating agreement should clearly outline the ownership rights of each member of the LLC. This includes their percentage of ownership, what they are responsible for, and their voting rights on decisions made by the LLC. Additionally, this section should include provisions such as how members can sell or transfer their stake in the company, and under what conditions a member can be expelled or removed from the LLC.
Another important item to include in your LLC’s operating agreement is how it will be managed. This includes who will serve in management positions and what powers they will have over decision-making processes. Additionally, this section should outline how meetings will be conducted, including who needs to attend and how decisions will be made. It should also stipulate who has control over finances and investments related to the company’s operations.
Distributions & Taxation
The operating agreement should also detail how profits from the business will be distributed among members, as well as how taxes will be handled. This section should state whether profits are distributed on an equal basis or based on each member’s percentage of ownership stake in the business. Additionally, it should provide information about tax filing requirements for both state and federal levels as well as specify any other tax liabilities associated with running an LLC.
Creating an effective operating agreement for your LLC is essential for protecting yourself and your business partners against any potential disputes that may arise down the line. The above points are just some of the key items you should consider including when drafting your agreement; however, it is always best to consult with a lawyer who specializes in business law before finalizing any documents related to forming an LLC. By taking these steps now, you can ensure a smooth transition into running a successful limited liability company.
For more information about Limited Liability Companies, contact Curington Law, LLC at 312 803-1755 or online.