Do All LLC's Have Operating Agreements?

By Harper Jones

An LLC, or limited liability company, is a business that combines the features of a corporation and a business partnership. LLCs can be composed of several members, not shareholders or partners as in corporations or partnerships, whose assets are distinctly separate from the business itself; therefore, unlike in partnerships or corporations, members of an LLC have limited liability for the debts of the company. Operating agreements are an important key to determining the relationships among members in an LLC and delineate business responsibilities and protocols.

Legal Requirements

Many states do not legally require an LLC to create an operating agreement . However, a few states, including Missouri and New York, do require operating agreements, according to Missouri Statute Section 347.081.1 and New York LLC Act, Section 417, respectively. While many states may not require an operating agreement, some do have requirements regarding operating agreements should they be created. For instance, several states, including Arkansas and New Mexico, do not require operating agreements but require that operating agreements, if created, be in writing. Other states, such as Alabama, require that operating agreements created for LLCs with more than one member be in writing.

Significance

A well-written operating agreement can clearly establish the relationships among all members, the responsibilities of each member to the business, and other member and managerial obligations. Without an operating agreement, default rules of the state of incorporation will govern your LLC, according to LLC Made Easy. Therefore, even one-person LLCs establish operating agreements to ensure that their LLC has clear rules of direction as established by the LLC rather than the state of incorporation.

Ready to start your LLC? Start an LLC Online Now

The Operating Agreement

An operating agreement is a legally binding document that creates protocols for managerial methods, members' voting privileges, profit and loss responsibilities, dissolution of the company, and other pertinent business-related information. An operating agreement should contain detailed and clear information regarding ownership, especially if an LLC has more than one member. The agreement should also contain information regarding members' rights and conduct expectations; managerial rules and agreements, such as meeting management guidelines; and a provision that delineates how the LLC will act if a member dissolves his involvement with the company.

Creating the Operating Agreement

Even though many states do not require an LLC operating agreement, and many states will accept oral operating agreements, many LLCs choose to create an operating agreement to avoid default management by state statutes. Written operating agreements can be completed by using online fill-in-the-blank forms, can be drafted by the member or members of an LLC, or can be drafted by the LLC's attorney.

Ready to start your LLC? Start an LLC Online Now
Does an LLC Have to Have Officers?
 

References

Related articles

General Partnership Laws & Regulations

A partnership is a form of business entity owned by more than one partner. The key consideration is that the business is conducted with the aim of making a profit. Most partners enter into a formal written partnership agreement, setting out their rights and obligations, but a partnership can operate effectively on the basis of a handshake. Each state has its own laws relating to partnerships but the general principles remain the same across the United States.

Comparison: LP and LLP

When forming a new business, it is important to select an appropriate business structure. You may consider a number of factors, such as the length of the business venture, the nature of the business and the level of involvement by the investors. Partnerships are a common option because they are relatively simple to set up and allow for a variety of management structures. A partnership may be formed as a general partnership, limited partnership or limited liability partnership.

Corporation vs. Officer vs. Owner

A business that operates as a corporation generally drafts bylaws – a document that governs all aspects of the company. Commonly, the bylaws will provide the limitations on the type of transactions the corporation can engage in, the rights of owners, the role of the board of directors and how the business will be managed by officers.

LLCs, Corporations, Patents, Attorney Help

Related articles

Can I Have a Partner With an LLC?

A Limited Liability Company is a common business entity that may be owned and managed by one or more individuals. LLCs, ...

What Happens if an LLC Fails to Follow Formalities Such as Keeping Minutes of Meetings?

Running a limited liability company can be confusing at times, especially when you're trying to determine which ...

Advantages of LLC vs. an S-Corporation

A limited liability company (LLC) is a form of business organization authorized by state statutes to accommodate ...

Advantages & Disadvantages of a Limited Liability Company

A limited liability company, or LLC, is an entity that offers both advantages and disadvantages to a business owner. ...

Browse by category
Ready to Begin? GET STARTED