Starting a business is fun, but it’s also a lot of work! You get to bring your dream to life, but you also have to deal with a lot of paperwork 📝 and lay down a lot of guidelines that the business arrangement has to follow later. That’s where an LLC operating agreement template comes in.
There are thousands of templates available on the internet. But what makes you so sure that they have what you need?🤨 How do you ensure that the LLC operating agreement template you picked is good enough for your business? In this article, we’ll give you the information you need to identify which LLC operating agreement template that’s best for your business.
What Is an LLC Operating Agreement Template?
Let’s start with this basic question. Say you’re starting a limited liability company (LLC), be it a single-member LLC or a multi-member LLC. Lots of new business owners opt to establish a limited liability company, not a sole proprietorship. This is because an LLC is a separate entity from other legal entities and, as the name suggests, limits your personal liability. You can read more about that here if you’re interested.
Although it’s much easier than starting a corporation, there’s still a lot to do. Your necessary documentation includes the LLC operating agreement (Single-Member LLC Operating Agreement or Multi-Member LLC Operating Agreement). This document 🗂 basically serves as a roadmap for how your business will operate.
How do you put this crucial agreement together? After all the hassle 🤯 of trying to set sail for your business, it is only logical to tow the easier, much more effective lane when you can. In this case, that path of least resistance is the LLC operating agreement template. It contains all the basics of an LLC operating agreement so you don’t have to draft yours from scratch. 🙂
Components of a Great LLC Operating Agreement Template
Your LLC operating agreement has to include some basic elements to ensure a smooth run of your business activities and to avoid 🚫conflicts in the business operations. After all, there’s a lot of default rules and actions you have to take when starting a business. You need an action plan, financial records, liability protection, business structures, formation documents, and standard rules. And don’t forget accounting principles, ownership percentages, statement of intent, succession plan, and the day to day operations! Yep, it’s a lot!
Below, we’ll highlight and explain important elements you should include in your LLC operating agreement ✍🏼.
Who owns your company? Many LLCs assign the ownership of the company based on the percentage of initial capital contribution and subsequent capital contributions towards establishing the company. However, not all contributions towards establishing a startup are financial!
For example, let’s say there are three members in your LLC. You come up with 50% of the capital contribution, while the other two members have come up with 30% and 20% respectively. However, the other two folks are putting in more time and effort in actually starting the business. It is only logical 🧠 that the ownership agreement considers the additional contributions and ideas, not just the financial contributions.
Profit and Loss Distribution
It’s important to stipulate who will take what part or share of profit in your LLC operating agreement. A verbal agreement definitely isn’t enough! The equity structure of a business stipulates capital accounts and the method of distribution of profits and losses for your limited liability company. This key document must clarify this to avoid a conflict of interests between the business partners/business owners down the line.
How will you and your partners manage your LLC? The operating agreement should explicitly state this. You can stipulate whether your business will be a member-managed LLC or manager-managed LLC, elect the manager(s), designate the principal office and the primary offices, and delegate the roles and responsibilities of members and manager. Decisions like this ensure that all players understand their specific roles in the daily operations.
Decision-Making and Voting Rights
This is to determine how members of the LLC want the decision-making and voting procedures to work. In other words, in this section of your operating agreement, you’ll describe how the decision-making authority is allocated among each business owner. And what about cases where the business decisions require the members to vote? it is important for the operating agreement to stipulate whether decisions will be made based on a majority vote or unanimous vote. I
In most states, it is standard procedure for voting power to be determined by the percentage of ownership interest. However, this can be changed to suit your business. The most important thing is that the decision-making process for your LLC has to be stipulated in your operating agreement. After all, you wouldn’t want to be at odds with other members when it’s time to make minor or major decisions 😀!
When writing your operating agreement, it is best to consider the event of membership changes. This gives you guidelines to follow in case any member decides to leave or in the case of the death of a member. This section also details what would happen to the departing member’s ownership interests. Furthermore, this section can dictate what happens if a member goes through a financial life change, like filing for bankruptcy.
No one thinks about closing down their business when they start it! But unlike in a sole proprietorship, for a limited liability company, it’s a good move to outline steps in the event of dissolving the LLC. In this section of your operating agreement, you’d detail how to dissolve the LLC. You’d also include directions for dividing assets, such as a business bank account, after the business settles all debts.
Finding the Best LLC Operating Agreement Template for You
A great LLC agreement template puts all the above components together in one operating agreement. However, the entire agreement has to be comprehensive and carefully curated for your business to work well. In other words, to create an error-free and effective LLC operating agreement, you need a comprehensive and all-inclusive LLC operating agreement template.
Remember, this internal document can help you and your fellow business owners! It ensures that you have left nothing to chance when writing your operating agreement. So what are you waiting for 🙂? Contact us today to consult with our experts, who are always ready to help you with your legal needs.
Our reputation has proven that we’re here to make life easier for you and other business owners. We provide legal advice and cater to your legal document needs. You can pick up an affordable Custom LLC operating agreement template from us that won’t break the bank. Get started now and give your LLC the secure start it needs for success!