Major Elements of Operating Agreement for Limited Liability Companies
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Because the Operating Agreement is the most important agreement among the members of a multi-member LLCs, it should be prepared by an experienced business lawyer. A comprehensive Operating Agreement can minimize the risk of future problems and future disputes involving the management of the company.
The Operating Agreement sets forth the rights and obligations of the members. The Operating Agreement can require disputes to be resolved by arbitration, rather than with costly and stressful litigation. The following is a list of some of the most important elements to include in an Operating Agreement:
Set Rules for Admitting New Members: The Operating Agreement can require the consent of all members, or allow a prospective member to become a member with the consent of a majority of the members or all of the members.
Restrict Members from Freely Transferring Their Interests in the Company: The Operating Agreement should contain rules about how and when members can transfer or encumber their interests in the company.
Right of First Refusal on Transfers of Interests: The Operating Agreement can provide that a member who desires to sell or dispose of the the interest in the LLC must notify the company and the other members and give them the option to purchase the interest before it is offered to a prospective buyer.
Set Rules for Allocation of Profits and Losses and Distributions of Money: Without an Operating Agreement, profits and losses are allocated according to the relative capital contributions that members have made to the LLC.
Company Governance Rules: The Operating Agreement can require the affirmative vote, approval or consent of a majority of the members before significant changes are made in the business operations. This could include a restriction on the company's right to borrow and loan money.
Obligate Members to Pay Money to the Company: An Operating Agreement can require members to make capital contribution to a limited liability company under circumstances described in the Operating Agreement. money to the company when it is formed, on specific future dates or if the company.
Terminate a Member's Interest in the Company: An Operating Agreement may provide circumstances that give the company an option to expel a member and terminate the member's entire interest in the company.
Set Rules for a Member to Withdraw from the Company: By including a restriction on members' rights to withdraw from membership in the company, the limited liability company may be able to recover any money that the member owes to the company before the withdrawal is permitted.
Copyright 2006 All Rights Reserved. Indigo Business Solutions is a registered trade name.
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