LLC Operating Agreement
LLC Operating Agreement
San Diego Business Attorneys Serving LLCs and Their Members
The LLC Operating Agreement establishes the roles and responsibilities of the LLC’s co-owners or “members”. It provides for the financial responsibility of each member, what job(s) they will be responsible for, the percentage of ownership in the company they will enjoy and how profits and losses will be distributed. The LLC operating agreement as a corporate contract should also provide a mechanism to handle major life events for its members such as bankruptcy, divorce, incapacitation or death.
The operating agreement should establish when corporate meetings will be held, how voting will occur, and the voting powers and rights of each member. The operating agreement further protects your business itself, and provides additional legal protections to separate the personal holdings of the members from the operations and assets of the business. It is another component of the “corporate veil”, the very essence of why you chose an LLC to begin with.
Why is the LLC Operating Agreement Such a Critical Document?
California’s legislature recently passed laws that default to protect the minority interest in business operations and disputes unless the corporate documents address those issues specifically. Other states have provisions or “default rules” that require LLC businesses to divide profits equally among members regardless of how much each invested in the business, or the nature of their active role in running the company. Our business clients want to be able to establish their own rules and guidelines for how their business is to be run, instead of having to be bound by the default rules established in California or some other state.
The operating agreement should also clearly establish when and how money can be taken out of the business and by whom. Is income to be disbursed in a regular cycle (such as payroll) or can members draw distributions as needed? If the income is going to be left in the business the members will still owe taxes on their allocated share. Will the LLC provide enough income to cover the taxes owed on each member’s allocated portion?
Our Experienced LLC and Business Attorneys are Valuable Advisors
A downloaded form won’t take you through the various options and clauses that protect you most, or that override California laws or the laws of another state. At the Watkins Firm, our attorneys have extensive business experience not just in business, but in businesses like yours. Our clients value the comprehensive expertise and guidance we bring not just to individual components like the formation of an LLC or an operating agreement, but to the planning, operations and challenges their businesses require to achieve their goals.
It’s never too late to create or update your LLC’s operating agreement. Contact the experienced and proven attorneys at the Watkins Firm for a free consultation at 858-535-1511. We will work together to protect the time, money and hard work you are putting into your business, and to ensure that your business thrives.