Operating Agreements: LLC
A Limited Liability Company Operating Agreement (LLC operating agreement) is the agreement between the members of an LLC that governs the operation of the business. The Limited Liability Company (LLC) business structure was created to combine the best characteristics of both a general partnership and corporation. This agreement should discuss a number of different issues including the voting right of the members of the LLC, how a meeting of the members of the LLC will be called, as well as provisions for how those meetings are held. Furthermore, the owners of an LLC are called members. These members have a limited liability which mimics that of shareholders to a corporation. Aside from liability, the LLC is structured as a partnership. Another benefit of an LLC is that this business structure allows each partner to be a part of the management process. However, the members can designate a single manager. Two distinct characteristics of an LLC that separate it from a corporation is that there is normally not a board of directors, annual meetings, or the requirement for minutes to be recorded.
In addition, this document should provide a schedule of the contributions of capital to the limited liability company, how capital accounts should be maintained, the allocation of profit and losses among the LLC members, and how the managers of the company will run day-to-day operations. Further, the operating agreement should set out tax allocation among the members of the LLC. When properly used, an LLC can be an extremely useful business structure that offers almost no downside.
Further, this agreement should spell out the powers of the members, the managers, and the managing member if any. Likewise, the limited liability company operating agreement should identify how the LLC records will be maintained, and any management fees that the manager is entitled to. Finally, the operating agreement of the limited liability company should also discuss the process for the orderly dissolution of the limited liability company.
An LLC is perfect for new single business owners as it is cheap to start and does not require a lot of legal work during formation. However, this agreement also does not provide much legal protection and as such, you should understand the individual state operating agreements.
While business formation is static among different states, there may be different tax laws or small differences in regulations between DC, Maryland, or Virginia. To avoid potential issues later on during your business’s life, contact Antonoplos & Associates to create your LLC properly.
If you have any legal questions regarding further advice on how to choose the best business entity for your needs, Antonoplos & Associates is here to help guide you through the process at 202-803-5676 or on the web. Finally, for more information regarding business law, check out our blog.
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