Limited Liability Companies and Operating Agreements

Incorporating a Limited Liability Company (LLC) is a fairly straightforward task. Simply fill out the articles of incorporation and file them with the state agency, and the company will be established in the eyes of the state. All the forms are freely available and easy to locate. The process, however, should not stop there. Among other things, the member(s) of the LLC should establish an operating agreement.

An operating agreement, sometimes called a member control agreement, provides the rules by which the LLC will be governed. Without an agreement, the corporation is subject to the default rules set forth in the state statute. This can be troublesome, especially if there are multiple members of the LLC, with varying levels of participation or interest in the corporation. Creating an operating agreement allows the business to make its own rules.

The decision-making process for corporate determinations and the protocol in case of disputes are just a couple of the things LLCs can establish. These clear, predetermined rules help to avoid headaches and potential litigation down the road. The operating agreement also allows members to decide how and when profits or losses are to be allocated amongst the members, and determines if or how new members can be added. In addition, they can include buy-sell agreements and many other things.

If you’re setting up a business, it’s worth your time and effort to get off to a good start. Give us a call if you need help navigating through these steps.

Attorney Andrew W.R. Nielsen