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What is an LLC operating agreement?

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Quick Answer

An LLC Operating Agreement is a legal business document that defines the operating terms of a business to protect its legal rights and responsibilities. It helps a Limited Liability Company operate harmoniously with all parties involved in the business, and is often used for reference during business disputes.

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Full Answer

An LLC Operating Agreement includes important business management details such as the roles, rights and entitlements of each member involved in the business, member withdrawal and dissolution, and LLC accounting. The entitlements include membership interests, capital accounts, financial distribution, and tax responsibility. However, company managers or members are allowed to amend this agreement if they disagree with a particular clause.

An LLC Operating Agreement includes additional details such as the voting rights of each member in the company, the rules for voting, holding meetings, and making decisions about the company. It also highlights the ownership percentage of each member, and how they share their profits and losses. The agreement includes the management plan for the company and the buyout or buy-sell rules that should be followed when a member dies, or becomes disabled. Most LLC Operating Agreements are different because they are drafted based on the specific needs of that particular business.

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