Operating agreement
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An operating agreement is an agreement among limited liability company ("LLC") members about the business of the LLC and the rights and duties of the members. Operating agreements are not required by any state's LLC Act, but they are strongly encouraged. Operating agreements are analogous to a partnership agreement in multi member LLC's. They are also similar to corporate by-laws. In single member LLC's, an operating agreement is a declaration of the structure that the member has chosen for the company and sometimes used to prove in court that the LLC structure is separate from that of the individual owner and thus necessary so that the owner has documentation to prove that he or she is indeed separate from the entity itself..
An operating agreement is used to override default rules imposed by a state's LLC Act. For example, many LLC Acts provide that each member will have equal voting power on company decisions. However, if one member contributes 75% of the capital to the company, the members may agree that member should have more voting power. This can be addressed in the operating agreement to override the default state rules. Some other key provisions that an operating agreement should cover are; each member's capital contribution, a buy-out agreement, member meeting dates, the manager's rights and responsibilities, record keeping, and tax planning. These are not the only provisions that should be included and any agreement that the LLC"s members make regarding the governance of the company should be recorded in the operating agreement.
