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Beware Of The Inadequate Sample Operating Agreement For An LLC

Jul 8, 2008
The Operating Agreement is the fundamental document that establishes how much you get from an LLC and how the limited liability company operates on an internal basis. If you use an incomplete, unprofessional or improper document, you are setting yourself and your business up for major problems.

Obtaining a Sample Operating Agreement is Just the First Step

The LLC agreement for your business should be a tailored document for your particular situation. There is no such thing as a one size fits all sample operating agreement that can just be purchased and signed by all limited liability companies. The failure to understand this can cause significant disputes and issues later.

DETERMINE THE POWERS OR LIMITATIONS OF THE MAJORITY OWNERS

In a typical business, there is one person or a group of related persons or entities which own a majority of the limited liability company. Then there may be minority owners. A fundamental structuring matter involves whether that majority owner(s) will control 100 percent of the LLC business decisions or whether there are matters where the approval of the minority members are required.

Because owners of a member managed LLC business are much more active than with a corporation generally, most sample operating agreements are designed to provide the majority with this power. Just know that he LLC laws allow this structure to be tailored or limited if desired for your business.

Unfortunately, many of the LLC forms available do not have sufficient provisions to completely address this important issue. When looking for a sample operating agreement, make sure these provisions are in the agreement, sufficiently address the matter with enough detail and provide a way to amend or change it if necessary.

WHO GETS WHAT?

Believe it or not, many sample operating agreements omit to include the details of membership ownership or fail to provide sufficient, practical provisions to address the issues and questions that could come up with a real live, operating LLC business.

Imagine starting a business and making it successful and finding out that you care unable to receive the profits or otherwise benefit from the success as you may have intended when you started. Believe it or not, many entrepreneurs will start an LLC with one or two people, forget this detail in their operating agreement and then find out later that they are not entitled to what they thought they were.

The LLC agreement must clearly establish this. Make sure your sample operating agreement has ownership provisions that were drafted by a real practicing business attorney who has experience representing small businesses.

Without this requirement, you run the risk that the provisions related to ownership are inadequate or will not work once the LLC business is in operations. Avoid ambiguity as this only leads to expensive disputes.

SUMMARY

Your operating agreement is a working document and provides the fundamental features of the business you are building. Retain the services of an attorney to make sure that you have a proper document for your LLC business prior to adopting one.

If you do not want to retain the services of an attorney or cannot afford one, then insist on starting off with the right, professional sample operating agreement form which addresses the essential requirements and allows you to easily tailor it for your LLC business.
About the Author
Learn More Details about the Essential Requirements in a Sample Operating Agreement and Get Free Report about the LLC Operating Agreement. Visit The LLC Expert: http://www.TheLLCExpert.com
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