LLC: What is an Operating Agreement and why do you need it?

What is it?

An operating agreement is a key document used by LLCs as it outlines the business' financial, members and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms.

Why this document is important for your LLC?

1. To protect the business' limited liability status: Operating agreements give members protection from personal liability to the LLC. Without this specific formality, your LLC can closely resemble a sole proprietorship or partnership, jeopardizing your personal liability.
2. To clarify verbal agreements: Even if members have orally agreed to certain terms, misunderstanding or miscommunication can take place. It is always best to have the operational conditions and other business arrangements handled in writing so they can be referred to in the event of any conflict.
3. To protect your agreement in the eyes of your state: State default rules govern LLCs without an official operating agreement. This means that each state outlines default rules that apply to businesses that do not sign operating agreements. Because the state default rules are so general, it is not advisable to rely on a governing body state to manage your agreement.

Where should operating agreements be kept?

Operating agreements should be kept with the core records of your business. They are not required to be filed, nor do they need to be submitted to the state.

There is no need to send the Operating Agreement back to us once you receive it. It is for your record purposes only. Feel free to have it signed by all the members. If you want, you can also notarize this document with a notarization service that can easily be found online.

If you need to modify them, you can do so or you can reach out to our legal team at [e-mail] and they will be happy to help you.