Standard LLC Agreements

by William Pirraglia
LLCs require only two agreements, articles of organization and operating agreements.

LLCs require only two agreements, articles of organization and operating agreements.

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While limited liability companies, or LLCs, have some characteristics of corporations, one feature they do not share, thankfully, are the number of agreements, documents or legal requirements. Only two primary agreements are typically necessary to form an LLC. You'll need the articles of organization to file for state registration of your LLC. While not necessary to file for state recognition, an operating agreement is the second important document for proper LLC functioning.

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Articles of Organization

Similar to the articles of incorporation filed when registering a new corporation, the articles of organization are the legal agreement submitted when asking your secretary of state -- or other proper agency -- to approve your request to form an LLC. Articles of organization function as the charter and official legal request that your state recognize and approve your new LLC. Relatively simple documents, the articles of organization contain your new company's name and address, registered agent -- legal name and address of the entity designated to receive legal paperwork and lawsuit information -- members' (owners) names and addresses, and the manager's information and identification.

Operating Agreement

Similar to corporate bylaws, operating agreements explain how LLC members have decided to configure and operate the business. The most important features of your operating agreement include identifying the members and their ownership percentages, how the LLC will distribute profits and losses to members, all rights and responsibilities of owners, and agreed-upon options for the business to deal with additions or losses of members.

Additional or Fewer Members

Agreements on the method of increasing, decreasing or replacing members are critical to efficient LLC operations. Unlike most corporations, wherein stockholders wishing to become owners can simply buy available stock -- or sell shares if they no longer want to own part of the company -- LLC members are legally considered more like partners. Therefore, the LLC and its members should carefully consider the ramifications of losing or adding owners. Members should all agree to the method of managing this issue at the beginning of the LLC's existence.

Importance of These Agreements

Limited personal liability is the most important driving force behind LLC creation. To protect this valuable LLC feature, you should have as much written documentation as possible. If problems arise and creditors try to "pierce the protective veil" of the LLC, you should have clearly stated articles of organization and a detailed operating agreement. If LLC members have agreed on a formal action plan should a member wish to divorce from the company, an additional agreement specifying the method of reducing or replacing owners would be helpful. U.S. courts look fondly on LLCs with more, rather than less, documentation, reinforcing their limited liability status and personal asset protection.