Although not required by law, operating agreements are essential for every Limited Liability Company (LLC), particularly when it comes to guarding the limited liability protection of owners. Without such an agreement in place, the LLC will have the appearance of a sole proprietorship and the credibility of the LLC’s separate existence will be lacking. Furthermore, State laws which are often in conflict with the specific goals and objectives of LLC owners will determine the basic operating rules of a business when such an agreement is not in place. For these reasons, it is imperative for all LLCs to have an effective written agreement in place and for owners to exercise the freedom to choose the rules that will govern the company’s inner workings.
The Justice Attorney Group can prepare a carefully drafted operating agreement that allows you to structure your financial and working relationships with co-members (co-owners) in a manner that is suitable for your business. Operating agreements, although not required by California law, are very important contracts between members (owners) of an LLC which usually identify the following:
- The percentages of ownership in the LLC
- Capital Contributions
- Members’ voting powers
- Distribution of profits and losses
- The nature and purpose of the business
- Financial rights and duties
- Managerial rights and duties
- Members’ responsibilities
- Ownership transitions
- Buyout or Buy-sell provisions
Operating agreements are also extremely important in ensuring that courts will respect the limited personal liability status of owners. Consequently, these important agreements are necessary for all LLCs regardless of whether there is one owner or multiple owners.