What Should Be Included in a LLC Operating Agreement?


Quick Answer

An LLC operating agreement should include the members' voting powers, rights and responsibilities and their percentage interests in the LLC, as Nolo explains. The agreement should also include how the LLC allocates profits and losses and how the members plan to manage the LLC.

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Full Answer

Many states do not require an LLC to have an operating agreement, but having one helps to ensure there are no management misunderstandings. It also ensures that the business is governed by the members' rules instead of the default rules created by the state in which the LLC operates, according to Nolo.

An LLC operating agreement helps protect the company's limited liability status. This is of importance when there is a one-person LLC because without the formal agreement, the LLC can look like a sole proprietorship. An operating agreement helps ensure that the LLC is a separate existence, as explained by Nolo.

LLCs that are co-owned need to document the decision-making rules and profit-sharing protocols as well as outline the procedures for handling the addition and departure of members. If there is no operating agreement in place, misunderstandings over management and finances are possible. Without an operating agreement, the LLC is subject to the default operating rules created by state law, according to Nolo.

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