Need Help with a Business Operating Agreement?
Chicago Business Contracts Attorney Explains LLC Agreements
An operating agreement is a business document that sets the structure of a limited liability company (LLC). While only a handful of states require that you draft and sign an LLC operating when starting a new business, taking the time to draft one anyway can save you time and difficulties later. Similar to a partnership agreement, an operating agreement establishes the financial and work obligations for you and any other co-owners or members. This may be crucial if any business disputes or disagreements arise in the future. Most importantly, however, it protects your personal liability to the company, which is the main benefit of forming an LLC, as opposed to another type of company. Therefore, even if you are the sole owner of your company, then you should still draft an operating agreement.
At LAD Law Group, P.C., our attorneys offer a full range of business law services to entrepreneurs and established business owners alike. We can draft a business operating agreement for your LLC and/or review an existing agreement on your behalf. We can also offer you legal advice on any other contracts or documents you need. Additionally, we offer representation for business litigation, in case you need to defend your rights according to an existing agreement.
When Do I Need a Business Operating Agreement?
Although Illinois does not require you to have a business operating agreement, you should create one if you are starting an LLC. Other business types, including partnerships and corporations, require different legal documents, like partnership agreements or articles of incorporation. An LLC operating agreement is similar to these in that it establishes the structure of your business. The benefits of having such an agreement include:
- Protecting your personal interests. In a limited liability company, your personal finances, including debts and taxes, are separate from those of the business. This can be especially important if your business faces a lawsuit or undergoes bankruptcy, since an LLC protects you from personal liability for the company. A business operating agreement first of all establishes that you own an LLC and not another type of business. This is of enormous benefit, even if you are the sole owner and operator.
- Setting the management and financial structure. If you have business partners or co-owners, then an LLC operating agreement is essential. It defines the protocols you will follow for profit-sharing, making decisions, leaving the business and adding new members.
- Customizing your business plan. Illinois has default operating rules for LLCs that apply in the absence of operating agreements. However, these rules may not be best for your business. An LLC agreement allows you to customize these aspects of your business. For example, you can establish in your own system how to allocate profits amongst the members of your business.
A Chicago business contracts attorney can explain the benefits of an LLC operating agreement to you and assist you in drafting one to suit your company.
What Does a Business Operating Agreement Do?
Your business operating agreement will be unique to your company and may include certain provisions or protocols that others do not. However, in general, your agreement should establish:
- Ownership percentages. If you are in business with at least one other person, then each member usually receives a percentage of ownership of the LLC. Depending on your individual circumstances, this percent may be based on each memberâ€™s investment, or some other system.
- Rights and responsibilities of all members. Based on your business plan, you can include information about each memberâ€™s responsibility to the company. For example, if one member is in charge of the companyâ€™s accounting, then include this in the agreement. In the event that breach of fiduciary duty occurs, your agreement can establish liability.
- Allocation of profits and losses. Usually, each memberâ€™s share of the businessâ€™s profits (called â€śdistributive shareâ€ť) is based on his or her ownership percentage. However, you may assign special allocations on another basis, if you wish. This part of an operating agreement can become complex, especially as you must consider tax concerns and reinvestment.
- LLC management. Your business may be member-managed or manager-managed, depending on your needs. Usually, members share management responsibilities, especially when starting a new business. However, if you have passive investors or many members, choosing a manager may make more sense.
- Voting powers. When important issues arise that may drastically affect your company, you need a system for making decisions. You can establish a voting system in your original agreement, avoiding gridlock and infighting later.
- Protocols for business operations. These include systems for holding meetings, voting and buyout protocols. You may also establish what happens when a member wants to leave or dies.
A business attorney can help ensure you do not leave out any crucial details when writing your operating agreement.
Our Chicago Business Contracts Attorney Can Help You Write an Operating Agreement
If you need assistance in writing or reviewing an LLC operating agreement, then a Chicago business contracts attorney from LAD Law Group can help. A lawyer can guide you through the process of writing operating agreements so that you do not omit any crucial information. Additionally, if you are defending a previous agreement, then our law firm can help.