Drafting an operating agreement is an important step in running an LLC. Your company’s operating agreement will lay out the ground rules for day-to-day operations and members’ responsibilities. Some business owners choose to bypass an operating agreement, to their company’s detriment.
Every LLC is unique, so every LLC’s operating agreement will be unique. Still, there are a few necessary components to any good operating agreement. Including these key pieces will help ensure that your LLC runs smoothly.
First and foremost, the operating agreement should address the company’s ownership. Ownership in limited liability companies is usually proportionate to members’ investment. In other cases, an LLC can be owned by just one individual. However you and the other members decide to assign ownership, it should be clarified in the document. It should also elucidate how to change ownership in the event that an owner decides to withdraw.
Roles, rights and responsibilities
Another important role of the operating agreement is to clarify members’ roles, assign responsibilities and enumerate their rights. Members may also wish to elect a manager; the document should stipulate the manager’s duties, as well. Sometimes, a member may wish to pull out of the LLC. Your operating agreement should address the procedures to handle this possibility. Including these details in your agreement can prevent your company from floundering if a member leaves suddenly.
Profits and losses
Last, but not least: Divvying up profits and losses. This is by far one of the most important details to include in your operating agreement. You and your fellow members may get along well, but relationships can quickly sour when it comes to money. Your operating agreement should address how members will shoulder profits and losses. Typically, both of these are allotted according to the percentage of members’ ownership. You can also adjust distribution according to your members’ wishes.