When setting up an LLC Operating Agreement, one should understand that this will be laying the groundwork for your company and how it will be run. Different states have different rules about whether or not an LLC needs to set up an operating agreement. But it is a very good idea so that everyone knows how things will run in this company and many other details.
One of the first things that should be established is the list of rules for your company. This will reduce any confusion in the future and everyone will be clear on what the rules are. When establishing the rules, it is best that they are reviewed and agreed upon by everyone in your company before they are written down and put into practice.
Another item to be established early on in the LLC Operating Agreement is the division of the company and how much everyone owes. This will be different in every case depending on how much an individual is contributing towards the company and what your company does. But this should also be established early on so everyone knows where they stand and how their investment is being returned. This includes how the shares of the company will be divided up amongst the co-owners as well. Voting rights can be established at this point. The voting rights of every individual will depend upon how much of the company they own. Those who own a larger interest in the company will have votes that carry a heavier weight than those who do not.
Also, the managerial structure and duties of every member should be decided upon and written down as well. This will reduce confusion and will establish who does what, who reports to whom, and what to expect as the company continues. This is also a good time to determine how decisions will be made within the company. Once again, this will serve to avoid misunderstandings and arguments in the future. Establishing this at the very beginning will help everyone be confident about their place in the company.
One of the last things that should be done in an LLC Operating Agreement, as difficult as it may be, is to discuss what strategies to be adopted if the business is to be dissolved. First thing that should be determined is how many votes it would take to agree to dissolve the business. Secondly, it should be decided how the company will be divided in the event that the LLC is dissolved. It’s possible that there will not be much left to split at that point. But it is still important that the protocol be established so that there will be no confusion later on when emotions and tensions are already running high.
Do remember that no LLC Operating Agreement is set in stone. If it is discovered that a policy or procedure that has been put in place does not work or is unnecessary, it can be removed quite easily. The same applies if it is discovered that a rule or procedure needs to be added. In order to set up an LLC Operating Agreement, all the members of the company should gather with a lawyer and set up the agreement with everyone present. This way everyone has a voice and everyone will be heard when the company is being set up.
Here is our collection of 30 Professional LLC Operating Agreement Templates,