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The Limited Liability Company Operating Agreement

Major Topics That Should be Addressed
The limited liability company operating agreement for your business needs to address certain  matters for your LLC.  Here is a summary of the major ones:
1.  Management Structure.  The documents should not only make clear whether the company is member managed or manager managed but should have sufficient provisions providing parameters and rules for how the members or managers will make decisions on behalf of the business. 
2.  Type and Number of Members. The Membership provisions of a Limited Liability Company Operating Agreement are so important. While the LLC laws generally do not impose any restrictions on type, number or levels of ownership, a particular business will need to adopt some parameters and processes for how ones become a member and the rights of members in the business.
3. Life of the LLC. LLC laws provide that unless the formation documents provide otherwise, a limited liability company has a perpetual life.  This is generally a desired provision for most businesses.  However, in some situations such as one where there is a finite business activity being conducted (i.e., a joint venture), the Members may want to provide for a definite duration for the LLC.  In these cases, such date should be in the formation documents and the limited liability company operating agreement.
4. Allocation of Profits and Losses.  This is the section of the document that sets forth the relative rights of the members in the financial and tax aspects of a business.  While most LLC laws default to a structure where the members share in proportion to their capital contributions, a few state laws default to equal division among all members regardless of their specific contributions and efforts.

This is a must have provision and one every LLC business should address in writing and not rely on the default laws in the statute as in most cases, the default rules may not be the intention of the members.  Avoid disputes later.
5. Right To Receive Distributions.  The document should address when members will or can get distributions of cash out of the LLC.  Typically this is when the members vote on a distribution and approve based on a certain percentage of ownership approval.  However,  there may be a different desire.  For example, certain members may want to be assured distributions in certain events or, in another example, the members want to keep all profits in the business and avoid any unhappy members.  Address this process upfront in the limited liability company operating agreement.
6. Rights to Transfer Membership Interests. This is a really important matter from a practical perspective. Some Members may join thinking they can sell or otherwise transfer their ownership units at any time (similar to the way shares of stock can be transferred).  However, in most small business LLCs, it is key to restrict the ability of members to transfer their units.  This is because a small business is like a family and you just do not want anyone to be able to enter into the family and have rights, obligations and a voice without you agreeing for them to be there.  This can cause major business disruptions.  A good limited liability company operating agreement addresses this an balances these two interests based on the specific concerns of the particular business and members.

With the LLC Expert, you can rest assured that our LLC Operating Agreement Forms have provisions addressing the above matters.  Practicing business attorneys experienced in LLC laws drafted our forms and many business attorneys are our customers who use them in their legal practices. 
 

OTHER ARTICLES ABOUT THE LIMITED LIABILITY COMPANY AGREEMENT:
Essential Requirements of a Sample Operating Agreement

LLC Agreements - A Summary of its Purpose and Objectives

FAQ Center- Commonly Asked Questions About the LLC Operating Agreement

Limited Liability Company Agreement- Who Will Need to Use this Document?

State Specific LLC Operating Agreements
Model LLC Operating Agreements Available by Instant Download
Special LIMITED TIME Bonus with Purchase:  10 Advance LLC Operating Agreement Form Inserts with Explanations. Click Here for List of Advanced LLC Operating Agreement Provisions and Details.