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By Sanjeev Kumar
Founding Attorney

If you are considering establishing your business as a limited liability corporation (LLC), then you are going to need an LLC operating agreement. Not only does this agreement govern the operation of your LLC, but it sets forth key details relating to the inner workings of the LLC that will be critical to clearly communicate to the LLC members. In setting forth key provisions in the LLC operating agreement, you provide clear guidance on how important matters are to be handled within the LLC. You also can help set clear expectations for LLC members and, therefore, avoid needless misunderstandings and disagreements down the road.

Key Terms for Your LLC Operating Agreement

In order to reap the many benefits having an LLC operating agreement in place can bestow upon your business, you must set forth key terms. After all, there is quite a large variety of terms you can include or choose to exclude from your LLC operating agreement. You should, however, at least consider including the following important terms in your LLC operating agreement:

  • LLC Identifying Information: This section should include the name of the LLC as well as the addresses of both the initial registered office and the principal business office.
  • Statement of intent: This should state that the operating agreement was created in alignment with the laws of your state. It should also state that the LLC will officially come into existence once the requisite documents and official LLC forms have been filed with the state.
  • Business purpose: What is the purpose of the LLC? What is the nature of your business? Be sure to include this in your operating agreement.
  • Term: Sometimes, an LLC is formed only to serve a specific purpose. Once that purpose is achieved, the LLC ends. Other times, the LLC is only to exist for a specific period of time and then will come to an end. In many cases, an LLC is to continue until it is terminated for one reason or another pursuant to the terms of the operating agreement or pursuant to state law. Whatever you plan for the term of your LLC, set it down in your operating agreement.
  • Admission of new members: Members play a critical role in an LLC. Over time, you may wish to bring in new members. Providing for how a person can acquire an interest in the LLC and, thus, become a member of the LLC in your operating agreement can streamline the process.

These are just a few of the important terms you should include in your LLC operating agreement. Other terms that can be helpful to include may address:

  • The distribution of profits and losses
  • Member meetings and voting rights
  • Management structure
  • Duties of members
  • Compensation of members
  • Withdrawal of members
  • Transfer of member interest
  • Dissolution of the LLC

Business Law Attorney

For assistance drafting a strong LLC operating agreement, reach out to The Kumar Law Firm. Contact us today.

About the Author
Sanjeev Kumar is the founder and principal at the Kumar Law Firm, which provides a wide range of legal services to entrepreneurs and business owners in the area of business & corporate law and intellectual property along with related areas of interest to clients such as business succession planning, wealth preservation through estate planning, and alternate dispute resolution.