What should be included in my LLC operating agreement?

I recently formed an LLC with two other partners and we are in the process of finalizing our operating agreement. I am looking for advice on what should be included in the agreement in order to ensure the legal and financial protection of all partners involved. I understand the importance of having a comprehensive agreement in place, and would like to ensure that all of our interests are properly represented.

Fabian G.

ContractsCounsel verified

Business Lawyer

Licensed in Florida

Free Consultation

View Fabian G.

4.8 (5)

Member Since:
May 9, 2023

Hello, My name is Fabian Garcia and I am a Florida-licensed attorney. What follows is a brief overview of certain important considerations when drafting an Operating Agreement: There are several items that need to be considered when drafting an Operating Agreement. First, you will need to determine whether your company will be manager-managed or member-managed. This is important because it will lay the foundation as to which individuals/entities will have the ability to control the company. Proper definitions should be used throughout the entire Operating Agreement to make sure that there are no ambiguities. Capital contributions are generally attached as an exhibit to the Operating Agreement, and describe the amounts that each member has contributed. Note that capital contributions can also be in the form of sweat equity. You will also want to make sure and address whether additional capital contributions will be required. Another item that must be touched on the Operating Agreement is membership. How will new members be admitted? Will a vote be required? Note that typically, members are not liable for the company's obligations by merely being members. There should be language addressing that as well. You will also want to make sure that there is a mechanism as to how members may dissociate from the company and whether the remaining members will have any buy-out rights. Next, the Operating Agreement should clearly address how profits and losses will be allocated. This goes hand in hand with how distributions will be made to the members, if any. Typically, if it is a manager-managed company, the manager will determine when the distributions must be made. All of the items which need to be voted on, along with the required voting percentages, need to be included in the Operating Agreement. The Operating Agreement should address whether the members will be able to transfer their membership interests in the company. Some third-parties may be considered permitted transferees. Additionally, the Operating Agreement should generally state that it will indemnify the members in the event of a lawsuit, under certain circumstances. Lastly, the Operating Agreement should always have a dispute resolution mechanism, indicating how disputes are to be handled. I routinely assist business owners by drafting Operating Agreements, along with other complex legal documents. Please let me know if I can ever be of assistance. Thank you.