Congratulations on forming an LLC! Now there’s another step to take: creating a solid operating agreement. An operating agreement is just that – a legal document where the members of an LLC agree to how the business should operate. Seems simple, but this contract will set the tone of your business, so it’s important to get it right.
Five sections that are essential in a good operating agreement are:
- Equity Structure. This section will outline who contributes what to the company, how the company’s interests are shared and how gains and compensation will be distributed among the LLC members.
- Management. The management section defines how the LLC will be managed, specifying whether it will be managed by members or other managers, and the criteria for how it will be done.
- Limitation on Liability. If ever the LLC is sued, this area of an operating agreement will set a preliminary plan of protection for legal procedures.
- Books and records. In this section, policies for record-keeping practices are established.
- Dissolution. A dissolution clause will set standards for who or what can trigger a dissolution of the LLC, as well as how the dissolution will proceed.
Depending on the type of company, there will most likely be more sections to include in an operating agreement, but these sections are important. If you are in the process of creating an LLC in the Raleigh-Durham area for your business, contact us to help create your personalized operational agreement.