Starting a business is an exciting venture full of possibilities and dreams. But before you dive in, there’s an essential document that can set the stage for your success: the operating agreement.
Think of it as your business’s playbook, outlining how things will run, who’s in charge and how profits will be distributed. Whether you’re a solo entrepreneur or part of a dynamic team, having a solid operating agreement is key to keeping everyone on the same page.
What should you include in the document?
An operating agreement serves as a framework for everyone involved in the organization and evidence for investigators and regulators. To ensure that it can protect your business, it should contain the following elements:
- Business name and purpose: This section provides the foundational details of the LLC, including its name, formation date, purpose and registered agent information. These are essential for legal recognition and operational clarity.
- Member ownership and voting rights: This element outlines each member’s ownership percentage and how voting rights are determined. This ensures transparent decision-making processes and aligns voting power with ownership stakes.
- Management structure: The document must specify who will be in charge: the members or a manager. Having a clear management plan helps the company run smoothly and ensures everyone knows what they’re supposed to do.
- Financial management details: This section outlines how profits will be shared among members and provides a clear plan for the LLC’s financial management. Clear guidelines help prevent disputes and ensure financial transparency among all members.
- Dissolution and modification of the agreement: The agreement should describe the process for dissolving the LLC and how members can modify it if needed. Including these provisions ensures the firm can adapt to changes and provides a structured approach to winding down operations.
Bigger LLCs with a large number of stakeholders will need more detailed agreements. Legal guidance can be valuable in these cases.
How a business lawyer can help
An experienced lawyer can guide you through the initial business transactions, ensuring that each step you take reflects your business’s unique needs and goals. Working with a lawyer gives you valuable insights that may help you sidestep common pitfalls.