- Well hey there, this is Seth from the REtipster Blog,
and in this short video today, I want to show you
a really quick and easy way that you can create
the operating agreement for an LLC.
So, if you're running your own business,
and if you have your own LLC,
chances are at some point you're gonna have
to create this document.
A lot of times, banks or lenders will have to
see this kind of paperwork in order to
verify that you actually have control
over your LLC, or if your LLC is owned
by multiple people, the operating agreement
kind of helps spell out who owns it,
who has the control, who makes the profit,
when the profits get distributed,
really a lot of potential things
can be baked into this document.
But for a lot of reasons,
it's an important thing to have,
and it's actually a good idea to create this
at the time that you register your LLC,
so that from day one, this document exists,
and just spells out all the details
about who has the control in the company.
So, if you've got a company that just has
one individual, maybe it's just you and that's it,
this is gonna be a pretty simple process,
but if you've got a LLC that has
maybe you and your spouse, or maybe you and another
business partner, or maybe you and 10 other people,
then this document gets even more important
to put together and to get right.
Before we dive into this, I'll just say
I'm not an attorney, so this is definitely
something where, I mean if you have any confusion
about it, you should definitely be talking
with an attorney just to make sure
they can inform you of all the specifics
and issues to watch out for,
because they can definitely be there.
But if you've got a fairly simple situation,
and you're confident that you know how
to do this yourself, I'm gonna show you
how to do it with a service here called Rocket Lawyer.
I've been using Rocket Lawyer for several months now
for a lot of different things in my business,
and I've just found it to be by far
the easiest way to create these kinds of forms on your own,
if that's what you want to do.
Now, this site is definitely not a substitute
for legal advice, so just keep that in mind.
You are kind of taking some risk into
your own hands if you're doing this yourself,
but in a lot of situations, like for example,
I have an LLC where I am the sole owner of that LLC,
and there's just nobody else involved.
That's a very cut and dry,
straightforward kind of situation,
so I would totally be comfortable
using this for somebody like myself.
But if this is something that you
want to try to put together, it's very quick,
it's not hard at all.
Let me just show you how this works,
and if you want to create one yourself,
there's a link beneath this video,
you can check that out and it will take you
right to this exact same page that you're
seeing here on the screen.
When you first get to the Rocket Lawyer website,
you're gonna see a page that looks something like this,
and in this situation, I'm just gonna put together
an operating agreement for a fictitious company.
I'm gonna put two people in this LLC,
just so you can get an idea for
how the process can go when you have more
than just one person involved.
Again, this is something that is different
in every scenario, so I'm not necessarily
saying you need to be filling out these
exact same pieces of information that I am.
This is just one possibility if there are
two individuals involved.
So, let's say that this company is in,
oh I don't know, Nebraska, I'll just pick one at random.
Then the first question is,
what is the name of the Limited Liability Company?
Let's just call it ABC Company,
and then I'll hit Continue.
Then where is the LLC being formed?
Go ahead and say Nebraska.
Continue again.
What date will the LLC Operating Agreement take effect?
We'll let's just say in this case, January 1, 2017,
and I'm really just picking that
because it's the first day of the year.
I would say generally you would pick
whatever the date is that you were
registering for your LLC,
or whatever today's date is.
It's really kind of up to you.
Just whatever rules you want to be in place
from that day forward, that's the date you would pick.
We'll hit Continue.
Then enter the name of one of the members.
I'll say the first one is John Smith, Continue,
and in this situation, we're gonna say that
there are two individuals, John Smith and Jane Smith,
and at the time of forming this company,
they're both going to be injecting
an equal amount of cash so that they both
own 50% of the entity.
So let's say that John is putting in cash,
and he's gonna be putting in a thousand bucks.
Then he's also gonna own 50%.
Then we're gonna add another member here.
This one is gonna be Jane Smith,
and these people could be husband and wife,
or they could just be individuals that are not married.
I'll say Cash for her as well,
and a thousand bucks, Continue.
Percentage ownership, 50%.
Okay so now we've got our two individuals in there,
and what is primary address for the LLC?
Just make one up here, and then we'll hit Continue.
What is the name and address of the LLC's registered agent?
So just a quick explanation on what this means.
The registered agent does not necessarily
mean that this person has any control over the LLC,
it just means that this is the person
who sent in the original registration
for the LLC in that state.
So in a lot of states, when you go to their
state-wide business entity search
on the state government website,
you can search for the business name.
It will usually tell you the name
of the registered agent, which is the person who
filed for the paperwork in the first place.
So this does not necessarily need to be John Smith
or Jane Smith, and in a lot of situations,
say if you wanted to protect your privacy,
and not display either your personal name
or your business address when people go ahead
and search for your business name like this,
you can actually do that through Rocket Lawyer.
They have a registered agent service
where you can pay them to act as your registered agent,
so if somebody ever searches for your company,
it's not gonna show your name and address,
it's gonna show their name and address.
It's kind of a nice little privacy
protection thing if that's something you want to do.
I'll have a link to that service beneath this video as well,
so be sure to check that out if that's
something you're interested in for any reason.
But, if you're not, let's just say in this case
John Smith is fine with having his own name on there,
and his own address.
He would just go ahead and put this in here like this,
and then his business address as well, whatever that is,
and we'll hit Continue.
Then the purpose, this is basically
where you just outline whatever
the point of the company is, whatever they do,
whatever service or product they provide.
I guess for example, I run a real estate investing business
where I buy and sell land,
so in my case, I could say real estate investing
company specializing in vacant land,
or something like that.
I literally just made that up on the spot.
It's just kind of your chance to explain
whatever it is the purpose of your business is.
Once that's in there, we'll hit Continue.
Then for how long will the LLC operate?
In my case, I mean whenever I've created an LLC,
I've never had like a planned end date
when that LLC would end.
I would always just click this top one here
for it to operate indefinitely.
So that's what I would do,
but it's obviously up to you, if you have different plans,
you can specify that here.
Then has or will the LLC elect corporate tax
treatment from the IRS?
So basically, this is kind of getting into
like tax expertise, which I don't have a lot of,
but it is possible to have your LLC taxed
as a corporation, which basically just means
there's different tax consequences,
which may or may not benefit you
depending on your business model
and the way your business works.
So this is definitely something you'll
probably want to talk to a CPA
if you're gonna do something special here.
In my case, I've never done this kind of thing.
I just get taxed as an LLC,
so I would just click No in my case.
Then how will decisions be made by the Members?
This is where you can specify which
individuals have the power to make decisions
for the company based on their voting rights,
and in the vast majority of cases,
most companies choose one of these two options here
where either all decisions require a majority vote
based on the percentage of ownership.
In this case, you have two 50/50 owners
who have equal voting power in that case.
But you could also set it up so that,
say if it was a 51/49 ownership
where one person clearly had more ownership
than the other, but you still wanted them
to have equal voting rights.
In that case, you could click the second one.
Just for the case of this example,
I'll leave this top one checked, go from there.
Then how often will the LLC distribute
the LLC's profits to the Members?
This is totally up to the user to decide this.
Just like looking at my LLC for example,
I do mine monthly, but I know people
who do it annually and quarterly,
and all kinds of different setups,
so that's totally up to you.
Will the LLC be managed my Members or Managers?
This is kind of like if you wanted to
put one individual in charge of everything.
Say if we wanted to put John Smith in charge
and name him the manager, then he would kind of
just be the manager of the company,
but you could also just leave him a member as well,
and then Jane Smith would also be a member,
so they kind of just work it together,
and there's not one presiding power.
So again, it's totally up to you however you want to do it.
In this case, we'll just say that John Smith
is the manager, and we'll click this bottom one here.
Then, will the LLC appoint officers,
such as a President, Secretary, or Treasurer?
If you've got a big LLC with lots of individuals involved,
you could totally do this.
I'm not going to here, I'm just gonna click No.
Then, when will the LLC's fiscal year end?
This is like the end of the year for tax purposes,
so all of my LLCs for example just end in December,
just like everything else would.
But there's some people who for whatever reason
will choose different times of the year.
It's totally up to you.
I think a lot of people just choose December,
just because that's the normal way most people do it,
so that's what I'm gonna click there, click Continue.
If a Member withdraws from an LLC,
how many days will the LLC have to buy
the withdrawn Membership interest and split it
among all the members?
I'm just gonna pick 30 days here,
just seems like a nice easy number to work with.
Then, how will the withdrawing Member's Membership
Interest be split?
You can either have it be equally between
the remaining Members, or proportionally
between the remaining members.
In this case, I'm just gonna leave it as equal.
Then, if the LLC Members choose not to buy
the withdrawn Membership Interest together,
how many days will be given for an individual
Member to buy the withdrawn Membership Interest
after the joint buy-out days have expired?
I'm just gonna go with another 30 days here.
Then, what vote will be required to dissolve the LLC?
You can either make it be majority,
so whoever collectively owns the majority of the LLC,
or you can make it unanimous,
so that basically everybody must agree,
or the LLC is not dissolved.
I guess just for this example I will go with Majority.
That's all there is to it.
It's pretty straightforward.
Rocket Lawyer is now generating my document.
One thing to keep in mind,
an operating agreement essentially
means nothing until the document is signed by both owners.
So, just keep that in mind.
You can totally create this document,
but if it doesn't have a signature,
then it just doesn't mean anything.
It's just a random document with nobody
agreeing to anything, so if you're working
with a bank or anybody who's trying to verify
who has the control of your LLC,
you're definitely gonna have to sign this thing
before you send this to them,
because without a signature, it doesn't really tell them
anything because it's not verified
by the actual signers.
Rocket Lawyer makes it pretty easy.
You can just sign it right here online,
or if you want, you can go ahead and download
an unsigned copy as like a PDF,
or a Word document, say if you want to get in here
and edit this after the fact,
you could do that too.
We'll just go ahead and get the PDF,
and then here we have it.
Just a pretty basic straight up template type document.
I've gotten templates from other websites
before in the past, and those can totally work too,
it's just that they don't make it
nearly as easy as Rocket Lawyer does,
because you kind of have to hunt through
the Word document and make sure you're hitting everything,
whereas with Rocket Lawyer, it's like you can't
really miss anything without knowing it,
because it asks you these questions one by one,
and as long as you can answer those questions,
it will create the document and insert
all the relevant information exactly where
it's supposed to go, so there's a lot less
guesswork involved, and I just think it makes it
way, way, way easier.
So again, that's how Rocket Lawyer works.
There's definitely other options out there.
This is not the only way to get the job done.
Or you could also go and hire an attorney
and pay them hundreds if not thousands
to do pretty much the same thing.
Sometimes that's totally appropriate
if you have a very complicated ownership structure
in your LLC, and you need to get really specific
about who can do what, then I think an attorney
can totally be a viable way to get this done.
But if it's a fairly simple structure
and you're confident with how that's supposed
to be setup and you're willing to do this work yourself,
if you can even call that work,
because as you can see, that was really easy
what I just did, but if you want to tackle this yourself,
Rocket Lawyer is an awesome way to do it.
The pricing for Rocket Lawyer is pretty cheap.
It's actually setup as a monthly subscription,
or you can also sign up for a annual subscription
if you know you're gonna be using it again
and again and again.
If this is the kind of thing where you just
need to create one document and that's it,
you can totally sign up for just a month,
and then be done with it.
Or if it's something that you're gonna be
going back to over and over again like I do,
then one of the subscription options
can make a lot of sense.
Either way, if you're gonna be using it repeatedly,
it will be way, way cheaper than working
with an attorney, especially if you don't
really need an attorney for a fairly simple
document that you're trying to create.
So anyway, hopefully that's helpful,
and hopefully that all makes sense.
Again, I use Rocket Lawyer for tons of stuff,
including deeds, land contracts, deeds of trust,
promissory notes, this kind of thing.
They just offer a ton of different services
and products that can make your life way, way easier.
So if this kind of thing looks like
it could be useful to you, be sure to sign up.
Again I have an affiliate link beneath this video.
I will get a small commission if you
signup though that link.
Obviously don't feel any pressure,
I'm not saying you need to do this.
It's not a prerequisite to do what
you're trying to do.
I just think it can make the process way easier,
and it's a great option just to be aware of.
So thanks again for watching the video.
Hopefully you found it helpful,
and hopefully I'll see you soon.