Stop the State from Controlling your LLC - The Truth about Operating Agreements
An Operating Agreement to a Limited Liability Company is a fancy way of saying a guide or rule book. The purpose of an Operating Agreement is to act as a map and provide guidelines on the numerous matters that can arise when running a business.
In some states, such as Delaware, an Operating Agreement is not required in order to start or form a LLC. However, if you do not have an Operating Agreement then your company will be governed by state law. This means that the State can come up in your business and make decisions regarding the procedures about your company or how decisions should be made in the company.
TOP THREE REASONS YOU WANT AN OPERATING AGREEMENT
LAWSUITS- Having an Operating Agreement for your LLC ensures that if you are sued or experience debt your personal home and money will remain protected. In some circumstances the Court has ruled that absent an Operating Agreement the LLC is really a sole proprietorship, thereby putting your personal assets at risk.
SINGLE MEMBER LLC-Operating Agreement determines how your business should be run if you are unable to run it anymore. This often comes in play when a owner of an LLC passes away. If there is no Operating Agreement the State will determine what would happen to your LLC. This applies to multi-member LLC's as well, however, with SMLLC upon death the LLC could be automatically dissolved.
MULTIPLE OWNERS- When an LLC is created owners do not always give the same amount of money, assets or time, so if the company were to be dissolved and there is no Operating Agreement then state law would rule. Most likely you would have to split the businesses' assets equally among the members even if you did more work or invested more money than the other members.
THE TAKEAWAY
Creating an Operating Agreement will give you all the above mentioned benefits and more. You don't want a co-owner to be able to sell parts of your LLC without your approval or be able to make purchases for the company without your consent.
Just because an Operating Agreement is not always required for an LLC I would still recommend having one.
You can create your own Operating Agreement but the generic versions provided online often do not address the unique and important needs of your LLC. (We know we are bias).
We would love to talk to you about your LLC, and creating an Operating Agreement to help save you money, time, and legal complications.