Operating Agreements for LLCs

With all business entities, there are certain documents that need to be drafted at the time the entity is formed. In a previous article, we discussed the importance of a shareholder agreement, which owners of a corporation, known as shareholders, should enter into at the time the corporation is formed. When forming a limited liability company (“LLC”), the owners of the LLC, known as members (as opposed to shareholders in a corporation), should enter into an operating agreement, which establishes their rights and obligations as owners of the LLC. Operating agreements govern the operation of the business, as well as identify the members of the LLC, provide whether the LLC is member-managed or manager-managed, and set forth the rights, powers, potential liability and obligations of both members and managers of the LLC. Once an operating agreement is signed by the members, it acts as a contract and binds the members to its terms. Similar to shareholder agreements, it is important that operating agreements are prepared at the time the entity is formed to make the members’ and managers’ respective rights and obligations clear with respect to all future events. To protect your business interests and discuss the preparation of an operating agreement, call the Business Law Group today and speak to an attorney.