Why You Should Have a Well Thought Out Operating Agreement for Your LLC?

An LLC is a business partnership that requires the input of two or more business professionals to operate. Each and every business professional has his own idea on how a company should be run, which is just one of the things that makes partnerships so challenging. The...  

 

An LLC is a business partnership that requires the input of two or more business professionals to operate. Each and every business professional has his own idea on how a company should be run, which is just one of the things that makes partnerships so challenging.

The document that dictates how the LLC will be run is the operating agreement. But too many partners allow their attorneys to put a template operating agreement in place and give the agreement very little thought. From the way a company accepts payments to the methods used to collect financial information for tax filings, every detail in an operating agreement needs to be thought out and understood by all parties.

Speeds Up Progress

A comprehensive operating agreement will spell out details such as how the company chooses merchant account providers and comes to accept credit cards. These are key details in the operation of a company, but they can also become stumbling points to progress when everyone tries to assert their point of view.

A comprehensive operating agreement outlines exactly how these decisions are made and what kind of authority each partner has in business matters. When it is spelled out in the agreement, it allows the company to speed up progress and get on with making money.

Revenue Is Divided Fairly

The operating agreement will outline how the LLC’s profits are distributed. With an LLC, the income is split among the partners and the partners take the profit or loss on their personal income tax filings. With a strong operating agreement in place, there is no confusion as to how the revenue is split and no question as to what each partner will get.

A Succession Plan Is In Place

One of the moments that creates a great deal of confusion and animosity in an LLC is when one of the partners decides to leave, or passes away. The remaining partners instantly go into self-defense mode and get their attorneys involved. Every business professional should protect himself with a competent attorney, but the LLC operating agreement should dictate the course of action to take.

Every LLC operating agreement needs to have a clearly outlined succession plan that discusses how the business is to be divided if the partners decide to close the business, and what will happen when a partner leaves. When it is outlined in the agreement, it eliminates many of the legal headaches that come from this kind of event.

An LLC operating agreement should never be a side-thought to a group of partners. The operating agreement should be a comprehensive and well thought out document that dictates how the company is run, especially in difficult situations.

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