The operating agreement is a very important part of having a Limited Liability Company. It lays out how the LLC will be run, and so It is not something to take lightly. Business owners ought to thoroughly research what they want and need there to be in the agreement. If you are unsure, then it doesn’t hurt to seek legal advice. You will want to make sure your operating agreement covers as much ground as possible. The following 6 points should be in your company’s operating agreement.
1. Ownership
First things first, you need to detail what the business is, who owns the business, who has percentages in the business. Ownership is not necessarily always based on the initial investment, so this is an essential part of the agreement, as you need total clarity as to who owns what. The beginnings of any business journey can be difficult, but consider forming an LLC if you wish to have a flying start.
2. Capital Contribution and Funding
Capital Contribution simply means who has given what to help start up the company. This notes the investors/members and who much capital has been contributed. Funding comes into play here too, as, if you were not able to get enough money to get the business off the ground, or you need to expand the business further, then you will have to have an idea as to how additional money will be raised.
You will also want to note where capital contributions will be going, whether that’s towards staffing, developers, security, and so on.
3. Management
This section is relatively simple, it just entails how the business will be managed and by who. Additionally, it will clearly state the percentage of voting rights that each member has.
4. Dividends
It is important to have a section that documents how profits will be distributed among members/shareholders of the business. Having this procedure clearly stated in an operations agreement is highly advisable as it doesn’t leave things up to interpretation.
5. How To Change Owners/Members
Within this section, you will want it to clearly state how members are added and removed to the company. This will entail processes for buying out and selling stakes in the LLC.
6. Dissolution of the LLC
In case of dissolution of the LLC, you need to have a plan as to how the assets will be split and who has a right to what. Laying out these procedures may seem a bit gloomy but it is of the utmost importance, as it can save you facing legal implications further down the line.
It can seem daunting when considering all the bits and bobs that need to go into an operating agreement, however, it is so vital that they are created. Not only that but to make sure that the agreement is as all-encompassing as possible. If you are going into business with a partner, having an LLC is the only way to guarantee that all parties are protected.
Operating agreements can take time, but they are worth properly researching and investing time into. There are plenty of templates online to help give you a better idea as to what they should include and what they should look like.