Why an Operating Agreement Is an Absolute Necessity When Starting a Business

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For those who own a limited liability company in or around Los Angeles, you are likely somewhat acquainted with a crucial document – the operating agreement for your online business. For those who need to form an LLC, it is a must-read article.

An operating agreement is a kind of business contract containing provisions that govern the operation of an LLC. Consider it because the LLC-equivalent to by-laws for an organization.

What Should Be Included in an Operating Agreement?

An OA should include an in depth recitation of the terms and conditions agreed to by the owners of the LLC, including contingencies which will arise with the intention to protect the LLC owners.

It should describe the particular protocols and policies each for day-to-day operations of the business and any unique circumstances. For instance, the agreement should contain provisions governing what happens if a member decides to depart from the LLC. It must also address what to do if an owner passes away or gets divorced from their spouse. The agreement must also explain member duties and responsibilities for the day by day operations of the business.

In California, the statutory authority governing the formation of LLC’s don’t require an operating agreement (though, it’s value noting that Corporations Code § 17701.02(s) defines the term “operating agreement”).

Despite not being a legal obligation, having one for an LLC is strongly beneficial because it is a document that might help protect you, and your online business. For those who form an LLC without an official operating agreement, you will probably be on the mercy of the state’s default provisions in regards to the operation of a business, which might not be what you would like. For instance, some states require that profits from a business be divided equally between members. For those who and your online business partners have a unique arrangement for the division of profits, but lack an operating agreement, you’re exposing yourself to serious risk if a conflict were to occur down the road along with your colleagues.

Provisions You Should Include in an Operating Agreement

The beauty of having an OA is you could individualize them to suit the needs of your online business. Nevertheless, there are specific provisions you need to make an effort to incorporate in your agreement, including:

• Definitions of key terms used throughout the agreement;

• Official name of the limited liability company;

• The formation date of the LLC and the overall purpose for which the LLC was formed.

• The length of time wherein the LLC plans to be in operation. In most instances, the length is “perpetual” unless a particular variety of years is designated.

• The address of the principal office, the name of the Registered Agent (to whom legal documents are sent), and the address of the Registered Agent.

• Contributions of every member and the character of their contribution (e.g., contributions in the shape of money, real property, mental property).

• Liability of Members Statement that the debts, obligations, and other liabilities belong to the corporate, to not the members.

Speak to an Attorney For Assistance in Properly Preparing and Filing an Operating Agreement

Though it is feasible to arrange an LLC operating agreement yourself, it will be in your best interest to take the time to talk with an experienced business contract lawyer in Los Angeles. Having legal counsel will help be certain that your agreement comprises the crucial provisions and doesn’t leave any critical issues or stipulations out.

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