Many business owners choose to create a limited liability company (LLC) because of the advantages it offers. With an LLC, the members are protected from personal responsibility for the business’s debts and other liabilities.
A business operating agreement is a useful tool for LLCs. It lays out how the business will be managed.
Business operating agreement overview
The business operating agreement may outline each member’s share or percentage of the business, how the profits and losses of the business will be divided among the members, each member’s rights and responsibilities and may include plans for the business if a member leaves. It can also include the rules and regulations that govern the business.
These agreements can prevent misunderstandings and disagreements between the business members. In the event there is a conflict, it is helpful to have the business arrangements in writing so they can be referred to.
Also, without a business operating agreement, the LLC may be subject to state default rules. Because these rules are often very general, they will not reflect the specific needs of the LLC.
Other topics to include
In addition to the items noted above, the LLC members may want to include information about voting rights, a management plan, meeting rules and how to address a member’s request for a buyout or request to sell his or her interest in the LLC.
If a business owner would like additional information about creating a business operating agreement or needs other business law assistance, an experienced attorney can help.