LLC: What is an Operating Agreement and why do you need it?
An operating agreement is essential for LLCs, detailing financial, membership, and operational decisions, including rules and provisions. It governs the internal operations to meet the owners’ specific needs. Once signed by LLC members, it becomes a binding contract.
Why this document is important for your LLC?
1. Protect the limited liability status of the business: Operating agreements protect members from personal liability within the LLC. Without this formality, your LLC could resemble a sole proprietorship or partnership, risking personal liability.
2. Clarify oral agreements: Even if members have verbally agreed to terms, misunderstandings can occur. It’s best to document operating terms and business agreements in writing for reference in the event of a conflict.
3. Protect your agreement in the eyes of your state: Without an operating agreement, state default rules apply to LLCs. These rules are usually very general. It’s wise to have a customized agreement rather than relying on state default rules to govern your LLC.
Where should operating agreements be kept?
Operating agreements should be kept with the core records of your business. They do not need to be filed or submitted to the state.
You do not need to return the operating agreement to us after you receive it. It is for your records only. Make sure it is signed by all members, and if you wish, you can notarize it using an online notarization service.
Do you have any other questions?
An LLC Operating Agreement is a crucial document that outlines the financial, membership, and operational decisions of your business. It protects your LLC’s limited liability status, clarifies terms between members, and ensures that state default rules do not govern your LLC. Keeping this agreement on record is essential for legal protection, and while you don’t need to file it with the state, it must be signed by all members.
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