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What is an operating agreement?

If you own a limited liability company (LLC), an operating agreement is a must.
Operating Agreements govern not only the way in which a business will operate during its life, but will also govern how your business will be “wound down,” and eventually dissolved – be it for an anticipated, or unanticipated reasons.

Some basic elements of most Operating Agreements include: the formal name of the company; information regarding each member of the LLC; the date the LLC was formed; how long LLC is expected to exist; its purpose; and how the LLC will be distributed at the end of its operation.
Other common, and often essential, elements include: the meeting schedule; fiduciary duties; management description; and how members can be added or removed.

While some Operating Agreements are relatively short, others can be quite long, depending on the unique needs of the LLC and its members.

If you are thinking about creating – or have already created – an LLC, and have yet to draft and adopt an Operating Agreement, Bashian P.C. can help you identify your goals; prepare an Operating Agreement that is right for you; and protect each member’s needs and business goals moving forward. 

Language regarding liability should also be included. LLCs are beneficial because they prevent business owners from assuming personal liability. Within your agreement, it should be stated that all financial obligations and debts are addressed to the company and not the individual members. When this is not included, it could be argued that your business is similar to a sole proprietorship, which leaves you vulnerable. Also, keep in mind that each state has different laws governing LLCs.

If you don’t create your own operating agreement, decisions will be made according to the laws regarding LLCs in your state. These rules are usually rather general so they can cover many different circumstances. As a result, the terms in your state may not be favorable to your company. Operating agreements must be comprehensive, which involves factoring in all future occurrences you could think of. An attorney can help you create an effective agreement that covers all the bases. 

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