7/7/2021 0 Comments
5 Tips On How To Draft An Operating Agreement To Protect Your Business Partnership
An operating agreement is a legal document issued by the limited liability companies (LLC) outlining the manner in which it operates.
What this implies is that an operating agreement will have all of the information on the financial rules of the company, roles of each of the founders, and ways in which they resolve disputes.
Unlike corporations that have corporate by-laws and articles of incorporation, limited liability companies have operating agreements, outlining the course of operations of the company.
Not all states mandate LLC companies to have an operating agreement, yet it is recommended that every business must opt for an agreement to avoid issues in the future.
What Does Operating Agreements Have?
While the exact information added within the agreement may vary from company to company, the standard norms suggest the inclusion of:
The total members within the company.
The tax considerations.
Structure of management.
In case the company has several members, the agreement is more like a binding contract between all.
Do You Need An Operating Agreement?
Having said the above, do you really need an operating agreement?
The answer to this is yes! Even though the law doesn't force you to have one, it is a good practice to have an operating agreement prepared for your limited liability company.
Having a written agreement outlines every detail of the arrangement and makes it clear to every member of the company. This ensures that there are no misunderstandings and everyone is on the same page.
The operating agreement provides more control over the business. It is noted that organizations that do not possess an agreement are judged based on state laws.
This might pose threat to the existence of the arrangement as few states render equal profits to all the members. Hence, it is best to have an operating agreement.
Also, an agreement preserves the limited liability aspect of the company. In case a company doesn't have an operating agreement, the owners of the same might be accountable for personal liability.
Tips For An Effective Operations Agreement
A document prepared without much attention would be as good as not having one. Keeping this in mind, we highlight five tips to draft your company's operating agreement effectively.
Purpose: To begin with, the operating agreement must specify the intent behind the creation of the company. What is it that the company seeks to achieve.
Contributions: Next comes, contributions. It is important to highlight what each owner is expected to contribute and under what circumstances.
Tax Considerations: The next thing to mention within the agreement is related to taxes. The agreement is expected to mention the terms of taxes. Meaning whether they wish to pay taxes as a partnership firm, a sole proprietorship or a corporate venture. Also, it will address how personal taxes will be paid and addressed.
Term Or Tenure: Conventionally, a limited liability company runs until it shuts down. However, at times organizations are set up for a specific purpose and for a significant period of time. Hence the need to mention the term of the company.
Management Terms: Lastly, specify whether the company would be member-managed or manager-managed In other words, this will address if the owners will partake directly in the management of the company or allows employees to do so.
Make sure you have all of the above-mentioned provisions within your company's operating agreement to be safe and secure.
Also, you never have to be without the support and counsel of fellow business owners if you join our entrepreneur and business Facebook group.
Daily we share information and content for business owners.
Click here now to join, tell us who you are, and always have the information that you need to support your company’s success.
Do not delay...as your success may depend on it.
Yoel Molina, Esq. (AKA “Mo”)
Feel free to join our WhatsApp group if you want to know more aboutt his and more!
Yoel “Mo” Molina, I am a lifelong resident of Miami, Fl. I am a graduate of Miami Senior High, Class of 1992, Georgia Institute of Technology, B.S. 1997 and University of Maine School of Law, J.D. 2001. I have been practicing law in Miami Since 2001. I am a former training prosecutor in the Miami-Dade State Attorney’s Office. I have experience in jury trials, appeals, and administrative hearings. I have appeared before judges across the State. My experience ranges from civil litigation matters, collection matters, foreclosure, business and corporate, contracts, real estate, leases and employment matters..
"Mr. Molina has always been there for us with timely, reliable and competent advice. He is an important and valuable part of our team." Corporate Client Eric Delgado, President of American International Export, Inc., a worldwide importer and exporter of brand name appliance parts.
"Yoel has been responsive and attentive to our company’s best interests and needs. He has been a valuable resource to our company. Any company that enlists his services would be in good hands-- including our own clients.” Corporate Client Gibran Flynn - Co-Owner and Founder of Eleva Solutions, Inc., the South Florida leader of outsourced HR, Staffing, Training, and Loss Prevention.
"My name is Anastasia Yecke Gude and I am the owner of Healing Hands Therapeutic Massage LLC. In the process of my company’s growth and expansion, I suddenly found myself a few weeks ago in need of a 1099 contractor agreement, and I needed it ASAP. As in, the very next day! I contacted the Law Office of Yoel Molina and his assistant put me in touch with Mo. I sent him what I had drafted up and he replied within a few hours with suggested revisions and clarifications, as well as a few insights I had not even considered. I was thoroughly impressed by the quality of work he provided, especially considering the time crunch I put him in (sorry, Mo!). I definitely recommend his services to anyone in need of a good contract attorney, and I will be calling him again for future work…hopefully in less of a rush next time!"