How to Draft an Operating Agreement for a Limited Liability Company
An operating agreement is a statement about the limited liability company (LLC) and the rights and responsibilities of its members. Although an operating agreement is not required by a state's limited liability company act, it is an integral part of a partnership, comparable with corporate by-laws. An operating agreement is sometimes used in court cases as proof that the limited liability company is separate from the owner's personal assets. Follow these steps to draft your own.
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Instructions
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Establish Guidelines Before You Draft the Operating Agreement
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Know how you want the limited liability company organized. You will need detailed information in the draft about the day-to-day management and organization of the LLC, as well as how you will share ownership.
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Discuss with other company members about how to manage the limited liability company. Allow plenty of time for this process, since you may encounter prolonged negotiations.
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Refer to the FindLaw Web site for tips and information about what to put in an operating agreement draft (see the Resources section below).
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Decide if you want legal counsel to negotiate the operating agreement. Companies sometimes hire an expert when they are large and the details of the holdings are complex.
What to Include in the Operating Agreement Draft
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Create a statement for the operating agreement draft. Describe the function of your limited liability company and the responsibilities of each person. For more information, purchase the latest edition of "Legal Forms for Starting and Running a Small Business" by Fred Steingold (see Resources below).
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Include an article about the purpose and operation of the company.
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List all the members of the LLC and an agreement of the terms, rights and duties of each person.
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Define the percentages of ownership, distributions, shares and who owns the majority of the limited liability company. Write this information line for line, with the percentages next to each member's name.
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Tips & Warnings
If you consult an attorney to help draft the operating agreement, be sure he or she has expertise in the tax regulations of the state where you set up the LLC.
Many e-businesses offer operating agreement drafts that you can download. This can save time and is a common approach for LLCs with limited members. Be sure the agreement package is specific to your state.
If you do not draft an operating agreement for the limited liability company and a dispute arises, the governing statute, also known as the "default" rules of the state, will manage the issue.
