What Does an Llc Operating Agreement Include

When starting a business, one of the most important steps is creating a legal structure for your company. For many small business owners, forming a limited liability company (LLC) is a popular choice due to its flexibility and protection of personal assets. Once you have formed your LLC, the next step is to create an operating agreement, which outlines the rules and regulations for how your business will operate. In this article, we will explore the key elements that are typically included in an LLC operating agreement.

1. Company information and purpose

An LLC operating agreement should begin with a section outlining basic company information such as the name of the LLC, the state it was formed in, and the purpose of the business. This section should also include details on who the initial members are, the percentage of ownership each member holds, and the voting rights of each member.

2. Management structure

The next section of an LLC operating agreement should outline the management structure of the company. This can be either member-managed or manager-managed. Member-managed means that all members have an equal say in the decision-making process, while manager-managed means that one or more appointed managers are responsible for running the business.

3. Capital contributions

In this section, the agreement should detail the initial capital contributions made by each member and how additional contributions will be handled in the future. This section should also explain how profits and losses will be allocated among members.

4. Distribution of profits and losses

An LLC operating agreement should also outline how profits and losses will be distributed among members. This section should detail the percentage of profits that each member will receive, as well as how any losses will be apportioned.

5. Dissolution and termination

While it’s never pleasant to think about, it’s important to have a plan in place for dissolution and termination of the LLC. This section should detail how the LLC will be dissolved, how any remaining assets will be distributed, and how any outstanding debts will be paid.

In conclusion, an LLC operating agreement is an essential document for any LLC business owner. It outlines the rules and regulations that govern the operation of the business, including management structure, capital contributions, profit and loss distribution, and dissolution and termination. By taking the time to create a comprehensive operating agreement, you can protect your business and ensure that all members are on the same page.