In our last post about corporate bylaws, we discussed the role a corporation’s bylaws document has on the governance of the business. Today we’re going to outline the information provided in this document’s LLC counterpart, the Operating and Member Control Agreement (frequently called the Operating Agreement).

LLC Operating Agreement

The LLC Operating Agreement, while not required to be submitted to any specific state or federal agency, is nonetheless vitally important and should detail every internal contingency that might face your business.

Most Operating Agreements include clauses pertaining to the following issues:

1. Definitions

The various terms that are used subsequently throughout the Operating Agreement are first defined here.

2. Formation

An overview of the LLC is provided here; information to be included is, essentially, the same information that was provided in your Articles of Organization.

3. Capital Contributions

An LLC is not a corporation and therefore does not have shares or shareholders. Instead, members contribute funds to the organization, and they collect percentage interests. A list of all members and their capital contribution value should be included, as well as a detailed account of various payout contingencies.

4. Allocation of Profits and Losses; Distributions

The Operating Agreement should specify that a capital account should be maintained for each member, detailing the profits, losses, distributions, and capital contributions associated with those members. Details about the above transactions should be included.

5. Management

In an LLC, the management of the company can be assigned to either managers or members. Which party is to govern the business is specified here, along with any additional officers and their responsibilities.

6. Records

All corporate documents and financial records should be kept in a location set forth in this section. The tax characterization with the IRS is also listed (this can vary depending on the amount of members).

7. Transfer of Membership Interests

The methods of handling of any sale or exchange of a member’s portion of interest in the company are provided here.

8. Dissolution; Continuation

In the event that your LLC is dissolved—closed, cancelled—the procedure for this is outlined here, including the process for dealing with members’ gains and losses.

9. Meeting of Members; Voting

This section outlines the amount of members who must be present for various activities, such as calling a meeting or determining the place of the meeting.

10. Amendments; Miscellaneous

Any additional information not previously provided, or any future alterations to any of the above, can be added.

A good Operating and Member Control Agreement is crucial.

Don’t let yourself put it off.

Despite everyone’s good and fair intentions, there are circumstances beyond your control at work in today’s business world. You need to protect yourself, your members, and your business.

There are many companies out there that will draft your Operating and Member Control Agreement for you, but Click and Inc provides this document as a customized, yet fully editable, Word template so that you have complete control over the personalization of your terms to best fit your needs.