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What to Know About Your LLC Operating Agreement

Introduction 

If you are planning to start a business venture, then it is crucial to formulate an LLC agreement. Notably, with the help of an LLC Operating Agreement, you will get personal protection. For instance, the LLC agreement allows you to draft unique rules and formalities. By formulating a limited liability company, you can even protect personal assets like a house, car, etc. Even though filing for LLC is not a difficult task, but it can get overwhelming. You may get confused over provisions and documentation to include while filing an agreement.

What documentation should you include?

Primarily, you are required to choose a business type. For example, you can pick between a corporation, LLC, and a mixed organization. Next, take the help of an attorney, then draft and file the documents. At the time of documentation, it is imperative to focus on the state laws. Meanwhile, you are also required to consider the type of business you want to run.

Information about the company

In here, you need to include the company name, address, tax information, and file legal paperwork. You also need to mention the name of a registered agent who gets legal notice and government correspondence.

Transferring ownership

It is essential to mention whether the members of the company can transfer their shares to a third-party. You also have to mention how to calculate the member’s interest in the company. If share transfer is prohibited, then consider what will happen if a company member dies.

What provisions should you include in the operating agreement?

Member responsibilities

Every member of an organization has some specific role to play. Thus, you need to outline those duties while formulating an LLC operating agreement. If company members allocate their responsibilities to non-shareholder, then do mention it. Most importantly, an organization can be member-managed or manager-managed. For a member-managed company, the daily operations are undertaken by company owners. On the other hand, the manager-managed company hires third party individuals to look after daily transactions.

Dissolution

You must establish a protocol regarding the company’s dissolution. In the provision, you need to mention events that trigger the process of dissolution. You need to state how the company members will distribute the assets left after the dissolution.

Non-disclosure and non-compete agreements

In particular, non-compete provisions are formulated to prevent a member from working for competitors. With non-disclosure agreements, you can safeguard the trade-interests of your company.

Distribution of profit and loss

You need to mention how profit will get distributed among the members of the company. The profit is distributed as per the total shares owned by a member. Besides, mention the names of members who are liable to file in for the tax return.

Company recordkeeping

Members of a limited liability company have to undergo several liabilities daily. For example, they have to maintain books and keep a proper record of daily transactions. Companies might lose the LLC status if they do not keep proper records of their business. Thereby members might lose asset security and become personally liable to pay debts.

Class of interest

Most importantly, LLC members are categorized into several classes. That said, every class members enjoy different rights like veto power, financial entitlements, etc.

Conclusion

A limited liability company is considered as an individual entity. Thus, members are safe when the business gets bankrupt. However, it is essential to formulate an effective LLC Operating AgreementAlways keep state laws into consideration while forming an agreement and take guidance from an attorney. While filing for documentation, make sure to mention the company’s information and transferring ownership. At the time of making provisions, mention member’s responsibilities, dissolution, class of interest, recordkeeping, etc. Thereby, you will also be able to safeguard the member’s interest at the time of bankruptcy.

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