Recent Answers to LLC Operating Agreement Law Questions

Randy M.

Answered Sep 6, 2025

If you're planning to invest in New York real estate with your husband and your brother, forming an LLC is probably the smartest move. It protects each of you from personal liability and keeps the ownership structure clean and manageable. Why an LLC Makes the Most Sense Think of an LLC as a legal shield. If something goes wrong, like someone gets injured on the property or the business gets sued, your personal assets (your home, savings, or personal bank accounts) are generally protected. That protection applies to all three of you equally. It also fits well with your ownership plan. Your brother can own 50 percent, while you and your husband split the remaining 50. Since New York doesn’t treat spousal property as community property by default, you'd each be listed as separate members. You could each hold 25 percent, or adjust that based on how much you're each putting in, whether financially or through work. On the tax side, an LLC is treated as a pass-through entity by default. That means the LLC itself doesn’t pay federal income tax. Instead, profits or losses flow directly to each of you based on ownership percentage, and you report that on your personal returns. This avoids the double taxation you’d run into with a corporation. What to Include in the Operating Agreement This is your internal rulebook. When family is involved, having a clear operating agreement is even more important. It keeps everything on record and helps avoid confusion or conflict down the line. You'll want to spell out everyone's ownership percentages, who’s contributing what — whether that’s cash, property, or services — and what each person is responsible for going forward. Decision-making rules are key here. Will you need unanimous agreement for big moves like selling the property? Can day-to-day issues be handled with a simple majority vote? You’ll also want to decide whether voting power should match ownership percentages or whether each person should get an equal vote regardless of their share. You should also cover how profits will be distributed, who’s managing the property or finances, and what happens if someone wants out. A buy-sell clause is a must. It explains how to value someone’s stake and who has the first right to buy if a member decides to exit or passes away. How to Form the LLC in New York To get started, you’ll need to file Articles of Organization with the New York Department of State. This includes basic information like the LLC’s name (which must include “LLC” or “Limited Liability Company”), its address, and your registered agent. The filing fee is around $200. One thing to be aware of is New York’s publication requirement. Within 120 days of formation, you’re required to publish a notice in two newspapers (one daily and one weekly) in the county where your office is based. This can cost anywhere from $1,000 to $2,000, depending on the county. New York City tends to be the most expensive. You’ll also need an EIN from the IRS. Even if you don’t plan to hire employees, you’ll need one to open a business bank account and file your taxes. Be sure to keep the LLC’s finances separate from personal ones. Commingling funds is one of the quickest ways to lose your liability protection. Why Other Options Don’t Stack Up A general partnership is easy to set up but offers no liability protection. That’s a big risk when you’re dealing with rental property or tenants. Limited partnerships require at least one general partner with full liability, which kind of defeats the purpose of forming an entity in the first place. S-corporations give you liability protection, but they come with tight restrictions. Most notably, profits have to be distributed strictly according to ownership percentages. That can be limiting if, say, one person is actively managing the property and should be compensated differently. C-corporations give the strongest liability protection, but they come with double taxation — once at the corporate level and again when you distribute profits to shareholders. For a real estate investment, that’s usually not worth it. Protecting Yourselves Beyond the LLC Forming an LLC is an important first step, but it shouldn’t be your only line of defense. You’ll want to carry solid insurance coverage, including general liability and property insurance. Many investors also add umbrella coverage (often $1 to $2 million) for additional peace of mind. If you plan to buy more than one property, it’s worth considering a separate LLC for each one. This prevents a legal or financial problem at one property from putting your entire portfolio at risk. It’s more paperwork and a bit more cost, but the added protection is usually worth it for serious investors. Also, stay organized. Even though LLCs don’t require strict corporate formalities, it’s smart to document big decisions and hold regular check-ins with all members. This keeps the business side of things separate from your personal relationships and helps prevent misunderstandings. Why You Need a Lawyer and a CPA Setting up a basic LLC isn’t too difficult, but because this involves family, money, and property, it’s smart to bring in professional help. A business attorney who knows New York real estate can draft an operating agreement that fits your situation and helps avoid trouble later. You’ll also want to talk to a CPA. They can walk you through tax strategies, depreciation, and how to maximize your deductions. If estate planning is something you’re thinking about, this is a good time to start looking at how LLC membership fits into your broader plan for wealth transfer.

Cherie M.

Answered Aug 1, 2025

It primarily depends on what your operating agreement says regarding consent for making changes. That will control the process. If it is just changes to the operating agreement, it does not need to be reported to the Secretary of State. Changes to the Articles of Organization would need to be reported, however.

Dolan W.

Answered Dec 6, 2024

Hello! My name is Dolan and I'm happy to help. Generally, an agreement can't be modified without the consent of the parties involved and additional consideration included (e.g. something in exchange). Whether the operating agreement can be changed depends on the terms itself. The parties can agree that only a majority vote is needed or may require a unanimous agreement for something like this. We can review the operating agreement for you and let you know what your rights are and offer some advice. Best of luck!

Dolan W.

Answered Oct 4, 2024

Hello! I'm so sorry about your situation. So generally the agreement cannot be changed without the consent of all the members. So this means that unless the members agree to make this change or unless you offer money in exchange to get them to waive this. Best of luck! Dolan

Russell M.

Answered Jun 20, 2023

Well, putting aside the very important detail that an LLC offers limitation of liability and a sole proprietorship does not, the difference between a sole proprietorship and an LLC is that you can allocate the profits to others through membership interests. This means you can bring on one or more investors and allocate the capital appreciation, profit and cash flow to the investors with the same or different terms from your interest, and that you can share profits with employees through a "profits interest". There is a great deal of flexibility that you can use through a properly drafted operating agreement.

Fabian G.

Answered May 26, 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.