Delaware Limited Liability Company Agreement

by Joseph Scrofano

Delaware has business-friendly tax laws and a well-renowned court system known for developing substantial jurisprudence in the area of corporate law. The Delaware Limited Liability Company Act does not require that LLCs organized under the laws of that state have an operating agreement. However, the law encourages LLC owners to draft and execute an operating agreement to help avoid costly and time-consuming future disputes.

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General Provisions

An LLC operating agreement is typically divided into several sections. A common first section covers basic or general provisions, and may include clauses stating general things about the business: name, purpose, the names of its owners, called members, and how long it will operate. In addition, the general provisions section may include information on the company’s registered agent and the location of its principal place of business.

Contributions

Another common section that Delaware LLC operating agreement may have is on contributions. This section usually details exactly what each member of the LLC will contribute to its operations. Some members may contribute capital, and this section states how much. Other members may contribute property or other physical assets, while others may contribute some expertise free of charge. This section may also describe the circumstances in which the LLC may ask members to make additional contributions or withdraw their existing contributions.

Management

Another important section of a Delaware LLC operating agreement sets forth how the members or managers plan to operate the LLC's activities. This could describe various procedures for making decisions, and may also assign voting rights to each member. It may also state whether the members intended to manage the company, hire outside managers or some combination of both.

Distributions

A Delaware LLC operating agreement typically has a section on distribution. This section covers how profits and losses are to be distributed among the members. Usually, a member gets profits from the company in some proportion to the amount he initially contributed to the organization, although there is no requirement for that to occur. This section may also discuss what circumstances may trigger the members to dissolve the company.