Writing An Operating Agreement That Works For You

28 06 2011

When you form a Limited Liability Company, your attorney should prepare an Operating Agreement. Your Operating Agreement is the contract that governs your company, and it is very important, especially if your LLC has more than one member. You should discuss the following issues with the other members of your LLC and your attorney before your Operating Agreement is prepared. If you already have an Operating Agreement that does not adequately deal with these issues, you should amend it.

1. Management/Control of LLC: Who will be responsible for managing the LLC? If more than one person will have management responsibilities, will you have to agree in order to make decisions? If you can’t agree, what happens? Will there be any compensation to members who take on a management role? Is there a non-managing member who will get a percentage of the profits? Think about how you will hire employees, take care of expenses, and who will be responsible for accounting issues.

2. Distributions: How will the income of the LLC be distributed?

3. Bringing in others: Can other investors be brought into the LLC, and if so, is agreement required? Will there be criteria for new members, or a process for approval?

4. Separation/if someone wants to leave/if someone dies or is incapacitated: What happens if a member of the LLC wants or has to leave? Is that partner entitled to transfer his interest?

5. Exit Strategy: Are you planning to go public or be acquired?

6. Capital: How much money is going into the LLC, and where is it coming from? Will more money be put in later? If the LLC needs more money, what will you do?

7. Dissolution: Process? Is there a time or event that should trigger dissolution of the LLC?

8. Death/Incapacity: If a member dies or becomes incapacitated what happens?