With an MMLLC (see more about types of businesses and why they need operating agreements here), the Members must agree on a variety of items for the ongoing operation of the company. Many banks require the LLC to have an operating agreement to ensure the business is completely defined. Even if the Members are friends, family members or have a close relationship, the following items are commonly included in an operating agreement:
1. What are the formation terms with the LLC (I.e. name of the LLC) and tax implications?
2. What are the initial investments in the LLC, and how does this relate to the ongoing ownership percentage of the LLC?
3. What if the LLC needs additional capital or investment? What requirements will existing Members have with these future capital requirements?
4. How will operational decisions be completed by the LLC, and what is the management structure of the LLC?
5. What if the LLC decides to add new Members? How will this impact existing LLC Members’ ownership?
6. What type of non-compete provisions apply for the LLC Members? Are there any non-solicitation clauses?
7. What if a Member wants to sell her LLC ownership? Can she sell that LLC Member interest to anyone, or does she need to sell to the existing LLC Members first?
8. What is the value of an individual Member’s LLC interest, and how will that be valued in the future? Will this value apply if he wants to sell his LLC Member interest?
9. What happens if one of the LLC Members passes away, becomes disabled, retires, gets divorced or has any other life changing event?
Unfortunately, many business owners do not take the time to talk through these items with all the Members. This lack of agreement can lead to problems, significantly increase operating expenses and potentially lead to the eventual demise of the LLC. Multiple Member LLCs must take the time to create an operating agreement. It is an essential part of the business’s future.
Ultimately, the LLC Operating Agreement becomes the governing document for the LLC, similar to a shareholder agreement for a corporation. Although most states require minimal inputs to create the Articles of Organization to form an LLC, an LLC Operating Agreement is still critical. If the LLC is involved in any future litigation, this operating agreement, along with reasonable organizational meeting notes and minutes, can make a significant difference for the Members.
At The Bell Law Firm, P.A., we work with business owners to help create the initial entity, and then assist them with their ongoing operating agreements, including the LLC Operating Agreement itself. We also help with many other challenges commonly encountered by small businesses. In addition, we are closely aligned with other attorneys specializing in niche areas like employment law and intellectual property to further assist business owners when needed.
If you, or someone you know, is a business owner with questions about the legal requirements and needs of your business, give us a call at 913-345-2323. We will be glad to meet with you and answer your questions.
Although small business owners are very busy, investing in legal foundational documents is an investment you truly need to make for your business.