An operating agreement is an agreement for the members of your LLC that explains how
the LLC will be managed both financially and operationally.
Your operating agreement also spells out how much of the LLC each member owns.
You can have one member who owns 100%, you can have two members with a 50-50 split, a
60-40, or 70-30 split, anything really, or you can have three or more members and split
the ownership any way that you'd like.
The LLC is a flexible business structure.
There's no limit on the number of members that you can have and there are no restrictions
on how you split the ownership of the company.
Unlike your LLC formation documents, the operating agreement does not need to be mailed anywhere.
You don't need to mail to the state and you don't need to mail to the IRS.
It's strictly an internal document.
This means you'll just need to keep a copy with your business and LLC documents.
The purpose of your operating agreement is to spell out who the members are and what
percentage of the LLC they own, also known as their membership interest.
It also defines how the LLC is managed, how taxes are paid, and how profits and losses
are distributed amongst the members.
Remember your LLC can be owned by one person, called a single-member LLC, or your LLC can
be owned by two or more people, called a multi-member LLC.
In order to complete your operating agreement, you will need have some basic information
handy: the formation date of your LLC, the name and address of the registered office
and the registered agent, the general business purpose of the LLC, members' percentages of
ownership, and the names of the members and their addresses.
Don't worry, your final operating agreement is not set in stone.
You can make changes as needed.
That's one of the benefits of an LLC is the flexibility of managing your business.
The operating agreement is a working document that is meant to be fluid and allow for changes
as your business grows.
If you want to make simple changes such as change of address for a member or changing
your registered agent or your registered office, you just need to revise the original operating
agreement and sign it.
If ever you need to make complex changes like one member purchases the interest of another
member or you decide to raise financing with investors, it's best to hire an attorney because
making changes like that can have negative legal and tax consequences if done incorrectly.
Once all the changes are made, you'll need to print out the new operating agreement and,
again, have all the members sign it.
It's all best practice to keep a copy of all versions of your operating agreement so that
you have a history of the changes that were made.
You may need to provide a copy of your operating agreement to a lender if you're obtaining
financing, a title company if you're purchasing real estate, accounting and tax professionals
for financial assistance, lawyers of legal advice, and potential investors or partners
who have an interest in your business.
If you're involved in a legal battle, the court will likely ask for your LLC's operating
agreement, too.
Having one can help prove to the court that you have a legitimate LLC and that you're
running your business properly.
If the courts were to find you running an LLC without an operating agreement, they may
go after your personal assets.
You may be asking yourself, ‘Where can I get a copy of an operating agreement?’
Unfortunately, none of the states provide an operating agreement, but you have a few
options.
You can pay an attorney $200 to $500 an hour to draft one.
Try martindale.com or lawyers.com.
You can buy one from a website between $50 and $100.
See myllcoperatingagreement.com, or lawdepot.com.
You can write one yourself and fill out a template.
The cost should be minimal.
Try docracy.com or nolo.com, or you can use the one that we provide so you can customize
it to fit your business.