Why Every Multiple-Member Should Have an LLC Operating Agreement

Why Every Multiple-Member Should Have an LLC Operating Agreement

 

 

It is extremely important that every limited liability company (“LLC”) have an LLC Operating Agreement. The LLC Operating Agreement is the core document that is referred to when issues concerning the LLC need to be resolved. It reflects the agreement among the members with respect to the affairs and management of the LLC, as well as governs the relationship amongst the members of the LLC. By having an LLC Operating Agreement, the members will be provided with a clear set of rules that all members have agreed upon greatly reducing the likelihood of disagreement between them in the future. A American Samoa LLC Agreement will also greatly reduce financial and management misunderstandings, and make sure your business is governed by your own rules — not default rules created by your state.

Don’t Let the State Tell You How to Run Your Business

Many state LLC statutes, for example, have default rules that govern how certain business decisions should be made, such as how the LLC will be managed, rules for holding meetings and taking votes, rules for the sale of the LLC, how profits and losses should be allocated, amending the Agreement, admitting a new member, and dissolving the LLC. Defaulting to state law for important LLC decisions could jeopardize your business. If you don’t want the state to tell you how to run your LLC, it’s important that you have a well drafted LLC Operating Agreement. By having an LLC Agreement, you can decide the rules that will govern your LLC’s inner workings, rather than having to follow state default rules that may or may not be right for your LLC.

Protect Your Investment

The Operating Agreement governs the operation and management of the LLC. It describes the business and economic arrangement of the members. LLCs need to document important and material issues that could impact the members, such as profit-sharing and decision-making rules as well as their procedures for handling the departure/addition of members, and the dissolution/termination of the LLC. Without an LLC Agreement, the owners will be poorly-equipped to settle misunderstandings over the operations, finances, and management of the LLC.

Signing Your Operating Agreement

The LLC Operating Agreement does not have to be filed with any state agency. All states will enforce valid Operating Agreements entered into among LLC members. It is extremely important that all members of an LLC sign the Operating Agreement because it will only be enforced against the members who are party to the agreement.

 

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