What is the Operating Agreement?

The operating agreement is the governing document of the LLC. It will lay out the plan for ownership and operation of the LLC. Most states do not require an LLC to have an operating agreement; however, the states default LLC rules apply in the absence of a specific agreement.

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What information is included in the Operating Agreement?

The operating agreement can be as detailed are basic as the members of the LLC desire. The most common subjects addressed in the LLC agreement include:

• The ownership interests of the members (owners);
  • Capital Contributions
  • Types of ownership interest (units, percentage, options, phantom rights, etc.)
  • Vesting of ownership interest.
  • Forfeiture provisions
• The procedure for LLC decision making, meetings, and voting rights;
• The rules for managing the operations of the LLC;
  • Manager-managed or Member-managed
  • Principle duties of managers/members.
• The rights of members (such as rights to profits or losses);
• The authority of members to act in or behalf of the LLC;
• The entrance or exits of new partners into the LLC (buy-sell provisions).

Related Topics

• What are the main characteristics of a Limited liability company?
• Forming an LLC
• Articles of Organization
• Operating Agreement or LLC Agreement
• Why You Need an LLC Agreement
• LLC Compensation of Members
• LLC Taxation
• Converting to an LLC