How to Draft an LLC Operating Agreement

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How to Draft an LLC Operating Agreement

An llc or Limited Liability Company operating agreement is a document which highlights the terms and conditions and details of financial arrangements between members of a limited liability company. Such a company has to prepare an llc operating agreement before they commence work, according the laws of most states in the United States. In case the jurisdiction of a particular state does not call for an llc operating agreement, the company shall function under the default laws of the state which pertain to limited liability companies. There are some important points to consider while framing llc operating agreements. Some of them are as follows:

  • An llc operation agreement must provide all information regarding the company which is to be started. This includes date of establishment, the role of each member of the forming committee, their personal and professional profiles, the purpose of the company, its internal laws and so on.

The llc operation agreement must be divided into sections. Some of the most common sections are:

  1. Capital contributions: This highlights the amount of capital put in by each member of the limited liability company in its formation and execution.
  2. Profits losses and distributions: This includes providing information about the scheme of profit sharing among the main beneficiaries and stake holders of the company and the way losses shall be compensated for. This is mainly done for tax purposes and general annual auditing.
  3. Management: This section provides information about the managerial aspect of the company, including the daily governing of the limited liability company and the internal policies of the company.
  4. Bookkeeping: This section deals with the details of regular and frequent book keeping responsibilities which have to be carried out by any company, and especially by a limited liability company.

[Also Read: Operating Agreement]

Benefits of LLC Operating Agreement

There are many important ways in which llc operation agreements are extremely useful. Some of these are as follows:

  • They lend an enormous degree of credibility(1) to a company. With all the proper documents in place, it becomes that much easier to account for financial and other matters in the company. It also assures investors and shareholders about where their capital is going.
  • They also ensure that legal transparency(2) is maintained. Since an llc operation agreement is a legal document which is validated, recognized and ratified by the law of a state, it ensures clarity, and sincerity on the part of the members of the company.