An LLC operating agreement sets the rules and parameters for which a limited liability company shall run their day-to-day business affairs.
There are two (2) Main Reasons for an LLC Operating Agreement
- Entity Status – One of the main reasons an individual will setup an entity is to isolate financial and legal exposure to the business. If a party attempts to question an LLC’s entity status the operating agreement helps to support the Principal’s claim.
- Partner(s) – If there are going to be partners in the company, it is best to have them tied to an agreement that states what exactly their everyday duties. Therefore, if the partner does not perform to their ownership percentage, the form may option to have language revoking their interest in the company.
The LLC operating agreement does not need to be filed with any government agency. It is signed and recommended to be notarized and kept in a safe place for easy accessibility.
- The following States require an operating agreement by law with the formation of an LLC; California, Delaware, Maine, Missouri, and New York. After the document has been signed it is important for all parties to retain a copy for their records.