The LLC Operating Agreement
is the Most Important Agreement for your LLC

Formation of an LLC is only the first step to starting an LLC business.  When an LLC is formed by a state agency, the LLC does not automatically have Members or managers unless specific Members and managers are appointed in the official Articles of Organization (which is the name of the document filed with the state to create an LLC).

For most states, the members and managers are not required to be listed in the Articles of Organization and so 99% of LLCs do not include the members or managers on the formation document.  This is a smart move because all matters on the Articles of Organization are public and you want to maintain your privacy as best you can. 

Without members or mangers, this means there is no one legally entitled to the profits of the business and no one legally authorized to run and operate the business.  So, how does an LLC get Members and appoint managers and officers to run the LLC business?  It accomplishes this in the LLC Operating Agreement.

The LLC Operating Agreement is the most important document for an LLC.  It contains the set of rules that apply to the ownership, management and operating of the LLC business.

Ownership is Established with the LLC Operating Agreement

The first purpose of the LLC Operating Agreement is to establish who owns the LLC and what percentage of the LLC that each Member owns. The LLC Operating Agreement also sets forth the voting rights of each Member.

One of the great features of LLCs is that the owners of the LLC are allowed to determine for themselves who gets what percentage interest and how to divide up the voting power.  It does not have to be uniform and Members do not have to contribute the same amount of money to receive the same percentage of ownership.   

A Management Structure
is Established with the LLC Operating Agreement

There are two primary management structures for LLCs.  One is called the Member-managed structure and the other is a Manager-managed structure. By default, the LLC laws assume that an LLC is Member managed unless it elects to be manager managed in the Articles of Organization or the Operating Agreement.  The LLC Operating Agreement sets forth which management structure applies to the LLC and includes the specific process for electing Managers in a Manager-managed LLC.

Regardless of which management structure is in place, an LLC must also have officers who have the authority to run the day to day business and enter into contracts and business transactions on behalf of the LLC.  In order to efficiently conduct business, an LLC should have a President, Secretary and Treasurer.  One person can serve in multiple officer roles.

The LLC Operating Agreement should have provisions authorizing the Members or the Managers to appoint officers and delegate day to day operational authority to those officers.

Other Important Purposes of the LLC Operating Agreement

In addition to the above two primary purposes, the other important purposes of the LLC Operating Agreement include:

• Setting forth any Obligations for a Member to fund the LLC;

• Specific Governance Processes for Approving LLC Actions;

• Important Provisions restricting Members from freely transferring their Membership Units or otherwise admitting new Members to the LLC

• All the important tax related provisions
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Don't risk your personal limited liability protection or increase the chances of later disputes and problems with your LLC.  The LLC Operating Agreement is the MOST IMPORTANT DOCUMENT for your LLC. 

Insist upon starting with a professional agreement form from experts in LLC matters.  We are not a forms company offering thousands of generic forms.  We are LLC specialists.

 

Our Model Texas LLC Operating Agreement Form was created by business attorneys who are expert in forming and representing LLCs (and their owners). 

 

 

 

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**** Our Model LLC Operating Agreement Form is not substitute for legal advice.  If you are in need of legal advice with respect to your LLC, please consult an attorney. 

**** Please note that our Operating Agreement is a standard operating agreement and does not contain any advanced provisions such as involuntary disassociation or forfeiture of membership units. Accordingly, once your LLC issues membership interests to a Member, that Member is entitled to his/her ownership in the LLC and the LLC or the other Members cannot take back or buy back Membership Interests of a member without that members consent. If you have any concerns or desire the right to buy back other Member’s interests at a later date for any reason, you should seek the advice of an attorney to draft advance provisions that are specific to your business situation which you can have added to your LLC Operating Agreement.

**** Complex LLCs Should Use an Attorney:  If your LLC requires complex tax planning or if your LLC will have Members that are insisting on the inclusion of investor driven provisions that benefit them specifically, the best advice I can give you is to retain a competent business attorney to draft the LLC Operating Agreement for your LLC.  In those situations, there is no substitute for legal advice.  For complex LLCs, an attorney is the best option to protect your interests.