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Operating Agreements

Operating Agreements

When creating a Limited Liability Company (LLC), its members are required to comply with a series of filing requirements, including creating an Operating Agreement. Although this document, unlike the Articles of Organization, does not need to be submitted to the state, it is still legally required and extremely important to the proper functioning of an LLC, as these documents specify how the company will be managed. Companies that fail to create a clear and exhaustive Operating Agreement risk running into problems down the line if there is a dispute between members about profit distributions or how the company must be dissolved. If you are beginning the process of forming a business and want to ensure that your company’s own Operating Agreement is completed correctly, please contact an experienced business formation attorney who can assist you.

What is Included in an Operating Agreement?

Unlike the Articles of Organization, which list a company’s name and provide an official company address, Operating Agreements contain details about how the business will actually be managed, as well as the following information:

  • The names and addresses of all of the LLC’s members;
  • Each party’s role, powers, and rights;
  • How membership will be terminated;
  • The procedure for admitting new members;
  • Whether the LLC is member-managed or manager-managed;
  • Each member’s percentage of ownership;
  • How the LLC will be taxed;
  • What each member will contribute to the LLC, which could include a lump sum payment, services, or expertise;
  • Whether profits and losses will be distributed weekly, monthly, quarterly, or based on an irregular schedule;
  • Whether specific actions must be approved in writing by the members;
  • How meetings will be called;
  • The procedure for dissolving the LLC;
  • How and under what circumstances ownership of the company must be transferred; and
  • The process of amending the agreement itself.

This is by no means the only information that can be contained in an Operating Agreement, but it is a good starting point for those who are considering starting their own business.


Advantages

Creating an Operating Agreement is legally required when establishing an LLC. However, there are also a number of advantages to drafting a detailed Operating Agreement. For instance, when LLCs are set up properly, they can offer valuable tax benefits, but only if this document is in place. Furthermore, if the company is audited and there is no agreement in place dictating how the business will be taxed, the IRS will tax it as a partnership, which can increase liability. Carefully drafted Operating Agreements can also provide asset protection to members who will have proof that their business is in compliance with state law and is being operated as a legitimate business, separate from their personal matters.


Contact Our Business Formation Attorneys Today

If you have questions about the adequacy of your current Operating Agreement or are thinking about starting your own business, you need the advice of an experienced attorney who can ensure that your interests are protected. Please contact one of the dedicated business formation attorneys at Valiant Law by calling (909) 677-2270 today.

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