Operating Agreement of an LLC: what it is, what it is for and model to download

When create an LLC in the United States, it is important to take into account various documents. However, one of the most forgotten, because it is optional, is the operating agreement.

Next, we will explain in detail what the operating agreement of an LLC is, what it is for and how to put it together. Let's get started!

What is an LLC operating agreement?

An operating agreement is an internal contract that details the terms under which an LLC will be operated. It is fully customizableaccording to the goals of the LLC and the needs of its members.

The operating agreement usually describes the ownership structure, how decision-making will work, dividend withdrawals, membership and exit rules, and other additional provisions.

This document is legally valid and, by signing it, its members are legally bound by it. While not mandatory, the absence of an operating agreement means that the LLC is governed according to the default rules of the state where it is incorporated.

What are the benefits of having an operating agreement for your LLC?

Having an operating agreement when forming an LLC in the United States offers multiple benefits for your business:

• It allows you to customize the way your LLC operates, since state law provides a standard operating agreement in case you do not have your own.
• The limited liability of each member of the organization is clearly established, thus avoiding possible legal inconveniences. It is even advisable to do it in single-member LLC.
• It helps to avoid misunderstandings and discussions, since the mode of operation and decision-making has been explicitly detailed and accepted by each member.
• A business order is created by determining the rules of succession and bureaucratic procedures such as meetings and votes.
• The operating agreement is a private document. There is no need to make it public, so members' privacy is maintained.

What should your operating agreement contain?

To create a good operating agreement that is fully functional for your LLC and your business, we recommend including the following sections:

General information

• Name of the LLC: The official name of the company as it is registered.
• Duration of the LLC: Whether the company has a set duration or is perpetual.
• Purpose of the LLC: Description of the business or activities that the LLC will carry out.
• Principal address: Physical address of the company.

Ownership and capital structure

• Members: Names and details of the founding members.
• Ownership percentages: How the property is distributed among the members.
• Contributions of capital: Details about the initial and future contributions of members.

Management and decision making

• Management structure: Whether it will be managed by members or managers.
• Rights and responsibilities of members/managers: Specific details about roles and obligations.
• Decision-making process: How they will be made important decisions (by majority, unanimity, etc.).

Finances and profit distribution

• Distribution of profits and losses: How and when profits/losses will be distributed.
• Bank accounts: Information about the LLC's bank accounts.
• Financial reports: Frequency and type of reports financial to be generated.

Changes in membership

• Addition of new members: Process to incorporate new members.
• Exit of members: Procedures for the voluntary or forced departure of members.
• Transfer of participation: Rules for the sale or transfer of interests in the LLC.

Dissolution

• Conditions for dissolution: When and how the LLC can be dissolved.
• Liquidation process: How will manage assets and liabilities in the event of dissolution.

Miscellaneous provisions

• Amendments to the agreement: How changes can be made to the operating agreement.
• Dispute resolution: Procedures for handling conflicts between members.
• Non-compete and confidentiality clauses: If they are aplicables.
• Leyes aplicables: Jurisdicción y leyes bajo las cuales opera la LLC.
• Fiscalidad: Si la LLC decide tributar como una corporación o no.

Firmas

• Firmas de los miembros: Todos los miembros deben firmar el documento

Frequently Asked Questions

Is it mandatory to have an Operating Agreement?​

It is mandatory to have an Operating Agreement for your LLC only in five states: California, Delaware, Maine, Missouri and New York. In the rest of the country, the constitution of this document is optional (although it is always recommended)..

What is the cost of making an operating agreement?​

The cost of an operating agreement varies depending on the complexity of each case, so it can range from a few hundred dollars to thousands. However, usually, requesting a specific quote is free.

What is the legal validity of the operating agreement? ​

Once signed, an operating agreement will be treated as a legally binding document, which means that any member can go to court in case of non-compliance with any section.

Is it possible to modify the operating agreement? ​

Yes, the operating agreement of an LLC can be modified, always leaving a record in the document itself and contemplating the signature of all the members.