What Should Be Included in an LLC Operating Agreement?
An LLC operating agreement is an essential document. It outlines the ownership of the company, how it is managed, and the rights and responsibilities of all those involved. Without a properly drafted agreement, you are leaving your business open to potential legal problems down the line. Here are some of the most important items to include in the agreement.
Corporate governance determines how decisions are made within a company and by whom. The corporate governance section of the LLC operating agreement should include information about who has voting power over certain decisions, who can appoint officers or directors, and any other rules that have been agreed upon by members of the LLC.
A non-compete clause prevents members from competing with the LLC while they are still members. This clause should outline what activities will constitute competition, such as providing similar services or products, as well as geographical limitation on where these activities can occur if necessary.
Book Access and Audits
All members should have access to certain books, records, and financial statements regarding the LLC’s finances and operations. This section should also include information on when audits may take place and who has authority to order them if necessary.
A buy-sell agreement outlines what will happen if a member wants to transfer their ownership interest in the company or wishes to leave permanently. This agreement will typically involve some sort of valuation process to determine how much money the departing member will receive from their shares of ownership in exchange for their leaving or transferring their ownership interests.
Purpose of the LLC
The purpose of an LLC is important because it defines why this particular business was formed and what it is meant to accomplish. All members should agree on this purpose before signing off on any documents related to starting or managing an LLC because it sets expectations for everyone involved moving forward.
Outline of Roles and Responsibilities
Each member should have clear roles and responsibilities outlined in this section so that there is no confusion over who is responsible for what tasks within the company. It is also important that these roles are clearly defined because they can sometimes impact liability protection for individual members in case something goes wrong with a particular project or decision made within the organization.
Change in Ownership Percentage
If new members join or existing members leave at any point during the life cycle of an LLC, changes may need to be made to reflect these changes in ownership percentages among all remaining members.
Dissolution of the Business
In this section, details about how an LLC can be dissolved voluntarily or involuntarily should be outlined so that all parties know what steps must be taken if dissolution becomes necessary. This might include details such as asset division among members or liquidation procedures depending on state law requirements.
Profit and Loss Distribution
A detailed description of how profits and losses shall be distributed among members must be included since this impacts each person’s financial interests directly.
Outline how decisions will be made within your business structure. Every member must understand up front exactly how decisions will be made so that no one feels left out when important matters arise throughout day-to-day operations.
Annapolis Business Lawyers at Oliveri & Larsen Can Help With Your LLC Operating Agreement
Creating an effective and compliant LLC operating agreement is a tedious process that requires strict attention to detail. To set up your business correctly, speak with our Annapolis business lawyers at Oliveri & Larsen. Contact us online or call us at 410-295-3000 to schedule a consultation. Located in Annapolis, Maryland, we serve clients in Ocean City, Anne Arundel County, Baltimore County, Baltimore City, Calvert County, Harford County, Howard County, Queen Anne’s County, St. Mary’s County, Worcester County, Kent County, and the upper and lower Eastern Shores of Maryland.