What questions should we be sure to answer in an operating agreement?


4

I'm at the point of forming an LLC with a partner, and wondering about questions that aren't obvious but that should definitely be included in an operating agreement. Questions like,

  • What are the conditions under which the company will dissolve?
  • How are decisions about company direction / focus resolved?

Anything else?

Thanks!

LLC Agreements

asked Oct 11 '10 at 02:07
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Riley
193 points

1 Answer


4

I recommend you read Form Your Own Limited Liability Company by Nolo. That's what I used when creating our Operating Agreement and it was extremely helpful. The book contains a CD with a fill-in the blank Operating Agreement template you can use.

Here's an outline:

  1. PRELIMINARY PROVISIONS: Effective Date; Formation; Name; Registered Office and Agent; Business Purposes; Duration of LLC
  2. MEMBERSHIP PROVISIONS: Nonliability of Members; Reimbursement for Organizational Costs; Management; Members' Percentage Interests; Membership Voting; Compensation; Members' Meetings; Membership Certificates; Other Business by Members
  3. TAX AND FINANCIAL PROVISIONS: Tax Classification of LLC; Tax Year and Accounting Method; Tax Matters Partner; Annual Income Tax Returns and Reports; Bank Accounts; Title to Assets
  4. CAPITAL PROVISIONS: Capital Contributions by Members; Additional Contributions by Members; Failure to Make Contributions; No Interest on Capital Contributions; Capital Account Bookkeeping; Consent to Capital Contribution Withdrawals and Distributions; Allocations of Profits and Losses; Allocation and Distribution of Cash to Members; Allocation of Noncash Distributions; Allocation and Distribution of Liquidation Proceeds;
  5. MEMBERSHIP WITHDRAWAL AND TRANSFER PROVISIONS: Withdrawal of Members; Restrictions on the Transfer of Membership
  6. DISSOLUTION PROVISIONS: Events That Trigger Dissolution of the LLC
  7. GENERAL PROVISIONS: Officers; Records; All Necessary Acts; Mediation and Arbitration of Disputes Among Members; Entire Agreement; Severability
  8. SIGNATURES OF MEMBERS AND SPOUSES: Execution of Agreement; Consent of Spouses

The book doesn't provide a lot of details about Buy-Sell clauses. For that take a look at Business Buyout Agreements by Nolo.

Also, when you have finished creating it, you should have a lawyer review it.

answered Oct 11 '10 at 03:34
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Zuly Gonzalez
9,194 points

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LLC Agreements