Pay Attention to the LLC Operating Agreement

Pay Attention to the LLC Operating Agreement - Business Attorneys

Why should you pay attention to the LLC operating agreement and why do most new LLC members and entrepreneurs miss this important document?  Many legal download sites provide new business start-up packages which are supposed to help you save a few dollars when starting a new business.  The fact is there are many important components to your corporate documents and the unique clauses and sections associated with these documents can determine your success or failure.

What Does the LLC Operating Agreement Do?

The operating agreement in an LLC establishes how each member in the LLC will conduct themselves, how profit is to be calculated and disbursed, the voting shares of each member and the responsibilities associated with their position in the company.  An effective operating agreement provides for the succession of the LLC in the event of a major life development for one of the members such as:

  • Divorce
  • Incapacity
  • Death
  • Personal Bankruptcy
  • Inability to Fulfill Financial or Business Duties

These events trigger a need to value the ownership shares of the LLC and provide a mechanism for protecting the company and the other members through these situations. 

These are some of the reasons it’s important to pay attention to the LLC operating agreement. There are also considerations regarding minority ownership interests and California law.  Recent legislation changed the balance of power between members in favor of minority positions unless these issues are clearly defined in the operating agreement.

Finally, you may be limited to the types of deals and transactions you can do outside of the LLC unless these powers are provided within the operating agreement.  You may be accused of acting outside of the duties of loyalty and good faith if you do not bring those opportunities to the LLC instead of pursuing them on your own.  It is important to work with sound business advisors who have decades of experience and expertise in your area of business.

The Watkins Firm will Help You to Pay Attention to the LLC Operating Agreement

The problem with download sites is you get generic forms and then have to try to figure things out for yourself.  If you can’t you wind up hiring an attorney anyway – that is how they really make money.  The LLC operating agreement has dozens and dozens of important clauses. 

The business start-up attorneys at the Watkins Firm have more than 40 years of experience forming small businesses and LLCs here in San Diego and Southern California. We offer competitive rates to new startups.  You are going to need a business attorney you can depend upon.

If you are forming an LLC, have used a boilerplate downloaded form, or have multiple members without an operating agreement we invite you to review our recent podcast Episode 3 – Corporate Documents as well as the strong recommendations of former clients and contact us or call for a free and comprehensive consultation at 858-535-1511.