What does an operating agreement cost?

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What does an operating agreement cost? This is a question many business owners have when forming a Limited Liability Company. Let’s explore this question and also review some general information about Operating Agreements.

How Much Does an Operating Agreement Cost?

Operating agreements are legally binding documents used when formatting a limited liability company ( LLC ). They outline how an LLC is managed, who has ownership, and how it is structured.

Getting help from an LLC lawyer with an operating agreement is highly encouraged since these are fundamental documents needed for starting and running a business. The last thing a business owner wants is for there to be future disputes with business partners, so it is best to work with an experienced lawyer to make sure all terms of the business are clearly laid out in a legal document.

Based on ContractsCounsel’s marketplace data, the average cost of a project involving an operating agreement is $601.11 .

Operating agreement cost depends on many variables, which includes the service requested, number of LLC members, and other factors.

What’s Typically Included in an Operating Agreement

Below are the key sections that are typically included in an operating agreement.

  • Organization. This section includes name and address of the company, date it was created, names of members, ownership structure, and description of the business.
  • Management and Voting. This section outlines who manages the company and how it is managed. It also outlines if and how voting occurs. Some LLCs may opt to assign a single member to manager and also choose to give different number of votes to each member.
  • Capital Contributions of Members. This section outlines the amount of capital that is contributed to the company by each member and notes about future fundraising.
  • Membership Changes. This section outlines if and how membership changes will be handled, which can include adding new members, transferring membership shares, death of a member, etc. The goal is to have a clear process outlined so there are no questions should this occur.
  • Distributions. This section details how the LLC will distribute profits and losses to its members.
  • Dissolution. If the business fails and needs to be shut down, this section sets a process for dissolving the company.

Types of Operating Agreements

Operating agreements can vary greatly in their terms based on how the business needs to be set up. Some businesses can be run by one individual and others may have multiple members. The two main types of operating agreements are below:

  • Single-Member Operating Agreements. This type of operating agreement is needed when there is only one member of the LLC. These documents have a lower operating agreement cost since there are less terms to implement into the agreement.
  • Multi-Member Operating Agreements. This type of operating agreement is needed when there are multiple members of the LLC. These documents have a higher operating agreement cost since they typically require more terms to be implemented and customized by a business lawyer .

Examples of Operating Agreement Projects

Operating Agreement Drafting Service

Many businesses will hire a knowledgeable business lawyer to draft an operating agreement when they set up their LLC. There are many online services or templates that allow you to create an operating agreement, but these run a risk of not having the specific terms you want included which can lead to future disputes between members.

Operating agreement drafting typically involves a consultation with the business to learn about the terms they want included in the legal document, then implementing those terms into a contract template to make sure it includes everything the business requires. Operating agreement costs can vary based on how many custom terms need to be included in the document, which typically comes into play when there are multiple members.

Reasons you may need to find a lawyer to draft an operating include:

  • Recently Filed an LLC with State Secretary Office. A business may have just created an LLC and want to hire a lawyer to professionally draft the operating agreement.
  • Members Want Custom Terms. A business may have downloaded a template online, but the members need it customized to fit the terms required to operate the business.
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Operating Agreement Review Service

In some circumstances, businesses may have an existing operating agreement that was put together at its inception. Given the fact that businesses evolve, they may require a lawyer to review the current document in order to answer questions or update it if the operating agreement doesn’t serve its intended purpose.

Reasons you may need to find a lawyer to review an operating agreement include:

  • Make Sure It Fits Your Business. Businesses will sometimes reuse templates of past operating agreements to save costs. In some circumstances, they may require a lawyer to review the operating agreement to make sure it fits their new business.
  • Update the Agreement with New Terms. Changes may have occurred in the operation of the business and a lawyer may need to update the agreement with the required changes.
  • A Member Has Questions. A member may be thinking of making a change and has questions about processes outlined in the operating agreement to make sure they fully comply and know their rights.
  • Major Change in Company. The company may be expecting a major change (acquisition, dissolution, etc.) and want to get a lawyer to review the existing operating agreement to make sure the business understands its rights.

Breach of Operating Agreement

In certain circumstances, relationships between business partners can become poor and a member thinks there was a breach of contract by one of the parties. This will require a review of the operating agreement and an analysis as to whether any of the terms were breached, which may lead to a business dispute.

Reasons you may need to review an operating agreement for a potential breach include:

  • Member Made an Unauthorized Decision. A member may have made a decision on behalf of the LLC that they were not allowed to make.
  • Member Isn’t Living Up to Capital Contribution Requirements. A member may not be fulfilling their responsibilities related to capital contributions.
  • Profit/Loss Disputes. One member may think the profit/loss of the LLC is not being handled in accordance to the terms of the Operating Agreement.

Drafting Operating Agreement Cost

Drafting an operating agreement comes with a cost, since it requires the time of a competent lawyer to complete the project.

ContractsCounsel’s marketplace data shows the average operating agreement drafting costs to be $570 across all states and industries.

Operating Agreement Review Cost

Hiring a lawyer to review an operating agreement will come with associated fees. The lawyer will need to spend time reading over the agreement to analyze the terms and consulting with the business.

ContractsCounsel’s marketplace data shows the average operating agreement review costs to be $850 across all states and industries.

How Do Operating Agreement Lawyers Charge?

Business lawyers have many ways of charging their clients for their services. Depending on the complexity of the project, the lawyer can suggest the best way to bill for services and may choose from the below options.

Hourly Rate

Many business lawyers prefer to bill their time with an hourly rate. This means the lawyer will offer an hourly rate to complete the operating agreement and log time in a timesheet to be invoiced at the end of the project. This is the safest way for the lawyer to charge clients because they are covered if the assignment takes longer than initially expected.

ContractsCounsel’s marketplace data shows the average hourly rate for a business lawyer ranges from $250 - $350 per hour.

Flat Fee

Flat fee billing structures are becoming more popular for contract drafting projects. Lawyers will simply provide a flat-fee price to the client for services to be approved and paid for when the project is completed. The benefit of flat fee billing is it provides certainty to the client on the total cost of the project. It is important to make sure the client knows what’s included with the fee before starting the project, as it may not include rounds of revisions.

ContractsCounsel’s marketplace data shows the average flat fee rate for operating agreement costs to be $676.25 .

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