One of an entrepreneur’s first legal decisions often is deciding to create a limited liability company (“LLC”). This can be a great decision as it helps provide a limitation on the entrepreneur’s personal liability. But filing the paperwork to create an LLC is the beginning of the formation process, not the end.
In order to preserve the limited liability an LLC offers, it must be operated as a wholly separate entity from its individual owners (called “members”) and rules must be followed – the LLC needs to be properly funded, company transactions (including distributions) need to be documented, company funds need to be kept separate, and the powers of the individuals running the LLC need to be defined, among other things.
WHILE THIS MIGHT SOUND OVERWHELMING, MUCH OF IT CAN BE ADDRESSED THROUGH A GOOD LLC OPERATING AGREEMENT.
An operating agreement serves as the internal rules for the LLC. A well-drafted operating agreement can:
- Document the members’ initial contributions;
- Establish the management authority of the LLC’s members or managers;
- Define how distributions are made;
- Specify the LLC’s rules for using a bank account;
- Define how meetings are conducted;
- Impose duties on members and managers, give rights to members;
- Address what happens when a member wants to sell their interest in the LLC;
- and more!
In other words, a lot can be accomplished in an operating agreement!
IN A NUTSHELL, AN OPERATING AGREEMENT SERVES AS A GUIDE TO MEMBERS AND MANAGERS OF THE LLC WHEN THEY’RE MAKING THE “BIG DECISIONS” AND IT HELPS PROTECT THE LIMITED LIABILITY OF THE LLC WHEN THOSE DECISIONS ARE MADE.
Is your LLC in need of an operating agreement? Is your existing operating agreement dated? Are you unsure of what’s even in your existing operating agreement? If so, our initial consultations are always free and we’re happy to help. Contact us today!
Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.
Rate this Post
Loading...