LLC Operating Agreement

One of the most typical corporate structures for U.S. startups and small businesses is the Limited Liability Company (LLC), and the primary foundational document governing an LLC is the Operating Agreement.

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An Operating Agreement is the internal rulebook your LLC will follow, governing how your company is owned, managed and operated. It is similar to the bylaws of a corporation or partnership and can be considered a private contract among the company's members that establishes the rules for how your business functions.

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Typical Sections of an LLC Operating Agreement

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Ownership structure

• Who the members are

• Percentage ownership interests

• Capital contributions

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Management and control

• Whether the LLC is member-managed or manager-managed (see our blog on this topic)

• Decision-making authority

• Voting rights and thresholds

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Financial terms

• Profit and loss allocations

• Distribution policies

• Accounting methods

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Roles and responsibilities

• Duties of members and managers

• Compensation

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Transfers and exits

• Restrictions on selling or transferring ownership

• Buyout provisions

• What happens if a member leaves, dies or becomes disabled

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Dispute resolution

• Procedures for resolving internal disputes

• Mediation or arbitration clauses

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An LLC Operating Agreement can prevent disputes, protect limited liability status, provide credibility to banks, investors and potential partners, and provide a framework to scaling the company.

 

Not only is an Operating Agreement incredibly important for any LLC, even a single-member LLC, it is also required in some states, including California.

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At Spiller Law, the LLC Operating Agreement is an area of expertise. Schedule a FREE consultation and let us know how we can help you.​​​​

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