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LLC Operating Agreement: Why Limited Liability Company Members Should Use One

By November 15, 2012October 22nd, 2017Business Contracts, Business Lawyer

llc operating agreementThe Difference Between An LLC Operating Agreement and Corporate Bylaws

One of the essential business contracts for a limited liability company, an LLC operating agreement (also known as an LLC Operation Agreement or LLC Membership Agreement) is similar to the bylaws for running a corporation.

However, a good operating agreement makes it easier to run your limited liability company without a lot of the paperwork formalities required for a corporation.

Many entrepreneurs use a LLC rather than a Subchapter S corporation as the entity of choice for their companies. If you’re one of them, the LLC’s Operating Agreement is your roadmap to getting things done easily but in a legal manner.

Related Article: How To Set Up A Texas Business In Just A Few Steps

The Importance Of Following The Agreement’s Terms

Why is it important to follow the terms of your LLC Membership Agreement?

Because it’s one of the key formalities you must observe to preserve the entity shield from personal liability in many matters faced by entrepreneurs in a sue-happy society.

7 Key Issues To Cover In Your LLC’s Operation Agreement

Here are some of the issues an experienced business lawyer should address when drafting your limited liability company’s operation agreement?

1. Will one member or all members manage your LLC?

2. What are the capital contributions made by each member?

3. Who makes decisions on behalf of the LLC and how are they made?

4. How do you add new members to your limited liability company?

5. What happens if one of your members decides to sell, retire, dies, or files for bankruptcy?

6. Will you use alternative dispute resolution to handle member spats? If so, what type, what law applies, and where will it occur?

7. When and how will your limited liability company terminate its existence and wind up its affairs?

What If Your State Doesn’t Require An Operating Agreement?

Some states don’t mandate that members have LLC operating agreements.

Yet, as a practical matter, as your business attorney can explain to you in detail, it’s difficult to run a limited liability company without such an agreement in place. For example, your bank will probably insist on seeing the agreement as a condition for setting up your company’s checking and savings accounts.

Mike Young, Esq.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994 and is an angel investor in startups. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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