The following LLC operating agreement template gives one an idea about the issues that should be addressed in an operating agreement.
An operating agreement is not mandatory for organizing a business as a Limited Liability Company (LLC). However, a well-drafted agreement can help members override unfavorable state default laws. It is important to have an operating agreement in place, even if the LLC is owned or operated by a single member. In the absence of the same, the entrepreneur may find it impossible to prove that the business is a separate legal entity. In other words, he/she may have to assume unlimited personal liability for business debts. The following write-up discusses the issues that should be addressed in an operating agreement and provides an LLC operating agreement template as an illustration.
Elucidating LLC Operating Agreement
Sample operating agreements that are available on the Internet, provide an idea about the horde of issues that should be addressed in the agreement. On an average, most operating agreements elaborate on the rights and the responsibilities of the members, their ownership interests in the LLC, their voting rights, the liabilities of members who are not managers, the allocation of profits, and the transfer of interests.
Sample LLC Operating Agreement
| Limited Liability Company Operating Agreement for …… LLC |
Article I
» Formation Article II » Capital Contributions Article III » Profits, Losses and Distributions Article IV » Management Article V » Compensation Article VI » Bookkeeping Article VII » Transfers |
Description of the Terms Contained in the LLC Operating Agreement Template
Article I
Article I deals with the formation of the company and states that the company is being organized as an LLC. The name of the company, the period during which the company will operate, the location of the registered office, the principal place of business and the purpose of starting the company is also stated in no uncertain terms. Article I also mentions the members of the LLC and provides details with respect to the admission of additional members.
Article II
Article II deals with capital contributions, specifically the initial and the additional contributions.
Article III
Determination of profits and losses for financial accounting and tax purposes, the distribution of available funds and distributions in case of liquidation come under the purview of Article III.
Article IV
The management of the business, the powers conferred upon managers, the liability of members who are not managers, and the responsibilities of the chief manager are dealt with in Article IV. The nominee, who would hold the title to the company’s assets, is designated. Company information, exculpation, indemnification, and records are also the subject matter of Article IV.
Article V
Article V discusses the compensation of managers.
Article VI
Article VI deals with bookkeeping and the importance of maintaining accurate business accounts, member accounts and reports.
Article VII
The operating agreement typically concludes with the discussion on the transfer of interests, especially in case of death, disability, or the lack of desire to continue business operations.
Most LLC operating agreement forms are available online and can be downloaded for a reasonable price. Although, the aforementioned LLC agreement template can give one an idea about the issues that should addressed while drafting an operating agreement, it is advisable to consult an attorney for details regarding organizing a business as an LLC.