Avoid Chaos With An Operating Agreement

When a business owner decides to file their Limited Liability Company (LLC) on their own, creating a thorough Operating Agreement is the step that is most often overlooked. Often, many commonly omitted details can be avoided when you go through the process of forming your LLC with a professional.  

The LLC Operating Agreement is an internal document outlining how the business operates. Once an LLC is created by filing the Articles of Organization with the Secretary of State, your LLC Operating Agreement should be created. It isn’t filed with the Secretary of State or any other government agency. However, each business entity must create and maintain this important document themselves.

Your Operating Agreement describes what happens when disputes arise between members, how membership interests can be transferred, who runs the business, and even what happens if a member goes bankrupt or dies. Unnecessary strife, wasted resources, and interruption of business can be avoided by having an LLC Operating Agreement in place and signed by all members, making it legally binding.

A single-member LLC may not need to be concerned about disputes between members, transfers of funds, or ownership of fixed assets, but to maintain limited liability status, the sole owner must be able to show that operations are a separate entity from the owner’s private financial matters. With a solid Operating Agreement in place, the LLC will have proof of ownership and its limited liability status.

Many people create Operating Agreements but forget to update them. Time goes by quickly. Life happens. Businesses may grow and evolve; members may change. Financial crises such as bankruptcy may happen, or personal issues such as divorce and death may impact operations. These situations can lead to all kinds of trouble.

Even the most carefully prepared Operating Agreement should be reviewed regularly to ensure that it is current and reflects the plan for your business. Not keeping the Operating Agreement current could cause legal issues, such as having to deal with probate, should one of your members die or become incapacitated.

At Law Office of Sativa Boatman-Sloan, LLC, we are well-versed in state law and can provide you with expertise to create and review your Operating Agreement for the basic requirements and ensure that the specific legal issues that impact your individual business are addressed.

This article was also published in the printed version of the Volume 7 Issue 1 Apr 2021 Newsletter (PDF).

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