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Understanding Operating Agreements

Resources
by ContractsCounsel
3 minute read

Operating Agreements: Key Elements You Need To Know

For every business, there needs to be a document that lays out the rules and answers the most critical questions. If your company is an LLC, this document is your operating agreement. This document is critical for all LLCs, even those with just one member, especially if you operate in a state that requires you have one on record.

Of course, an operating agreement must have certain key elements included for it to be effective. So, what items would a contract attorney include in an operating agreement?

Equity Structure

The equity structure must cover the following elements.

Management

An LLC has two options for management. The first is for it to be managed by the members, and the second is to bring in independent management. This portion of the operating agreement should specify who will run the LLC, how often meetings must be held, the duties of each manager, the length of term served, and what must be done for a manager to be removed.

Voting

The agreement should outline the standard rules for voting and clarify how many votes each member gets, usually tied to their percentage of interests. Depending on the circumstances, it might be necessary that the agreement withhold the voting rights of a member or member class. If certain members will be given veto rights, this should be clarified.

Liquidation and Dissolution

Here, the agreement must clarify who can decide to dissolve the LLC and on what grounds. Also, you can note specific events that automatically trigger dissolution. It should outline how assets will be liquified and divided upon dissolution.

Getting an Operating Agreement That Works for You

An iron-clad operating agreement will usually run 30 pages or more, which means drafting it on your own will take a lot of time and give plenty of room for error. Instead of going DIY, connect with contract lawyers near you. Contracts Counsel is a boutique marketplace that features vetted lawyers who fully understand the unique needs of LLCs. Protect your company with ContractsCounsel.com.

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.

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