If you have an LLC, you’ll need an operating agreement, which functions a bit like the bylaws of a corporation. The difference is that LLCs are generally much more flexible than corporations, which means there is more wiggle room in how they are run, which in turn makes it especially important to have a well-drafted operating agreement. Kalia Law P.C. often sees disputes among LLC members, and many such disputes could have been avoided by getting a watertight operating agreement in place at the beginning.
What do you need to have in an operating agreement? At a minimum, the operating agreement should describe:
– What each member has contributed and will contribute, in service, cash or other assets
– What each member owns and how they can vote
– The duties and powers of the manager (in a manager-managed LLC) and/or the members
– How and when distributions are made
– Whether and how a member can sell his or her interest in the LLC, and how such interest should be valued
– What happens if a member dies, becomes disabled, gets divorced, goes bankrupt or if the other members want him or her out
Thinking through such issues can be a good exercise for LLC members, both at the outset and as the LLCs grows, and you may find that creating a great operating agreement is a great investment in your company.