What is an Operating Agreement?
Your operating agreement is the single most important document for your business. It outlines the ownership of your LLC, shares of profits and losses, rights and responsibilities of members, and what will happen to your LLC in the event that a member leaves the company.
Operating agreements are also key in protecting you from liability. They are particularly essential if you intend to operate a single-member LLC. Courts in certain states have ruled against single-member LLCs, choosing to view them as sole proprietorships, and thus stripping their owners of their liability protection.
Any LLC without an operating agreement automatically falls under the default operating rules of the state they have registered in. These rules are not specific to your company, and they will offer you little protection or structure for your business.
Why do I need an operating agreement?
You need an operating agreement to determine ownership, rights of members, shares of profits and losses, and what will happen if a member leaves your LLC.
More importantly, you need an operating agreement to keep your LLC in a strong position legally should you, your members, or your company ever fall into debt collection. The LLC structure is designed to create a protection against liability, but without an operating agreement, your company will be in a weaker position legally.
Courts in certain states have ruled against single-member LLCs, determining that they were sole proprietorships because they were not run by their owners as LLCs. Having an operating agreement is the first step in illustrating that your company is an entity distinct from its owner (you), and thus the first step in ensuring liability protection.
What is required to be included in my operating agreement?
An operating agreement is not technically required by law, although every company should have one. What you include in your operating agreement is up to you, but most operating agreements include the following:
- Membership (Owners)
- Assignment of Membership Interests
- Value of Membership Shares
- Distribution of Assets
- Management Structure
- Rights and Duties of Managers
- Amendment Process
- How Members May Buy-In or Sell-Out Ownership Shares
Who do I file my operating agreement with?
No one. Your operating agreement is an internal document.
Does it cost anything to make my operating agreement?
If you are my registered agent, do you get a copy of my operating agreement?
No. You keep your operating agreement. It is an internal document.
Can you help me create my operating agreement?
Yes. If your hire Buffalo Registered Agent to do your LLC set-up, we can draft your operating agreement.
Does my name and address have to be on my operating agreement?
Yes. This document addresses who owns your business and how it is run.
Is my operating agreement a matter of public record?
No. Your operating agreement is an internal document.