What Is an LLC Operating Agreement?
An LLC operating agreement formally establishes details of the company's operations and serves as a form of legal protection. For many LLCs, the members themselves can create the operating agreement without requiring the assistance of a lawyer.
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Function
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A limited liability company's (LLC) operating agreement is a legal document that protects the LLC from lawsuits, financial disputes or partnership disagreements.
Significance
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Without an operating agreement, disputes involving the LLC would defer to the rules of the state in which the LLC is incorporated.
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Features
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The operating agreement describes the method of operation of the LLC, including but not limited to partnership arrangements and voting powers, profit (and loss) sharing, management structure and company dissolution. It also specifies the process by which the operating agreement itself can be amended.
Types
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The length and scope of operating agreements will vary by LLC; however, every LLC should have one, even if it is only a single member LLC.
Considerations
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Some states require certain elements be contained within an LLC operating agreement; review the state corporations division's requirements for more information.
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Resources
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