How to Write an LLC Operating Agreement

Should your small business form a limited liability company?

An LLC is a limited liability company (aka a limited liability corporation), ideal for start-ups and smaller businesses because the owners take on limited liability (hence the name) for the company. Forming an LLC is an inexpensive and fairly simple process. The operating agreement is what governs the operations of your LLC.

Difficulty:

Moderately Easy

Instructions

Things You'll Need

• Form for registering your LLC (see Resources for details on downloading a sample limited liability company form)
• Financial statements
• Operating agreement

1. Gather your basic information: the name of your company, where your company will locate and the names of members of the company and their physical addresses. Make note of your agent's name.

2. Gather your financial information: what the initial contribution of each member will be and what percentage of the company each member will own. This can be simple: you, the member, make an initial contribution of $10, and you hold 100 percent interest in the company. You can have a single-member LLC or a multimember LLC; what is important is that all members be included in the operating agreement.

3. Download a sample LLC operating agreement (see Resources). Yes, you can write your own, but it is much smarter and simpler to make use of the many samples available. Operating agreements are not complex, but the language is very "governmental," and you want to be sure it is interpreted correctly.

4. When setting up an LLC determine whether you need a registered agent. Every state's LLC laws are slightly different; in the operating agreement, you will see a blank to fill in for the Agent or Registered Agent. In many cases, this can simply be you, the member. Check your state's LLC requirements and find out (see Resources).

5. Check that the sample agreement includes the following statement under the heading "Business Purpose": "Purpose of the Company is to engage in any lawful act or activity for which a Limited Liability Company may be formed under the Limited Liability Statutes of the State of_________________."

6. Check the language on the Sample Agreement under the heading "Term": It is most common to put "indefinitely" for the term, and "by a majority of the membership interest" for terms of dissolution.

7. Check the language on the sample agreement under the heading "Management of the Business." Most small businesses are member managed, but you may want to organize the LLC as "managed by managers" if there are many members and/or if some members are active and some are passive. Be sure the agreement you are using has the appropriate language for how you want your organization to work.

8. Insert your own information into the Sample LLC Agreement using your notes from steps 1 and 2. Include the appropriate number of signature lines.

9. Print the operating agreement and print a typed list of the members' names and addresses; staple them together.

10. Have the members sign the operating agreement; copy it and provide a copy to each member. Keep the original copy in a safe place and keep additional copies on hand in your files.

Tips & Warnings

• Disclaimer: This how-to article is not legal advice. The links to forms and the information provided are not substitutes for the advice and services of an attorney and tax specialist. The information contained in the article and links may not be complete and is not to be construed as a legal opinion.

Resources

• Doc Stoc: Sample Operating Agreement for Member-Managed LLC (State of Delaware)
• Doc Stoc: Sample Operating Agreement for Member-Managed LLC