As a community service, the Law Offices of Karen M. Riggio, LLC publishes a complimentary e-newsletter designed for business owners and independent contractors. Each month, we offer valuable tips and practical, real life answers to today’s common contract issues and collection problems. Feel free to e-mail us your suggestions for future articles.

Karen M. Riggio

Similar to corporate bylaws, an operating agreement governs the inner workings of your LLC. By structuring your financial and working relationship with your co-owners, it helps to prevent financial and management misunderstandings in the future.

Co-owned LLCs need to document their profit-sharing and decision-making protocols as well as the procedures for handling the departure and addition of members. With a formal operating agreement, you and your co-owners establish each person’s ownership percentage in the LLC, share of the profits (or losses), rights and responsibilities, and what will happen to your business if one of you leaves. In general, most LLC operating agreements address the following issues:

• the members' percentage interests in the LLC



• the members' rights and responsibilities



• the member’s authority to spend, borrow, and issue checks



• the members' voting power



• how profits and losses will be allocated



• how the LLC will be managed



• rules for holding meetings and taking votes



• "buy-sell" provisions
  (a framework for what happens when a member wants to sell, dies, or becomes disabled).

Without a thorough operating agreement, not only will you and your co-owners be ill-equipped to settle misunderstandings over finances and management, but you will also be subject to the courts deciding how to run your company and divide the assets.

If you own an LLC, contact our office to learn how you can protect your business with an operating agreement. During our consultation, we can discuss your particular business situation and the specific issues you must cover in your operating agreement.