HOW SHOULD AN LLC OPERATING AGREEMENT BE DRAFTED?

An LLC Operating Agreement will greatly reduce financial and management misunderstandings, and assure your business is governed by your own rules, not default rules created by your state. The Operating Agreement governs the operation and management of the LLC. It describes the business and economic arrangement of the members. Depending on the business arrangement with your co-owners there are a number of issues that should be addressed in your LLC Operating Agreement. An LLC Operating Agreement should address the following issues:

• The name of the business
• The official business address
• Registered agent
• The name of the members
• The business purpose of the LLC
• Capital accounts
• Adjustments to Capital Accounts
• The withdrawal of Members
• Compensation
• The amount of money or property contributed by the members
• Additional capital contributions
• Failure to Contribute
• How disputes among members will be handled
• How the business will be managed
• Conduct of meetings
• Voting
• Rights, duties, and liabilities of the members
• Rights, duties, and liabilities of the managers
• Indemnification of managers
• How cash will be distributed to the members
• How profits and losses will be allocated to the members
• Under what circumstances will members be permitted to transfer their interest to a third-party
• Will the members be granted a “right of first refusal” or a “right of first offer”
• Will the members be granted “Drag-Along” and/or “Tag-Along” rights
• Will the members be provided with “tax distributions”
• The duration of the LLC
• Books and records
• Termination
• Dissolution
• Amendments
• Notice
• Arbitration/Court of Law
• Governing Law