Does Your Business Have an Operating Agreement?
In addition to articles of organization, Missouri statute requires all LLCs to have an internal operating agreement and the state of Kansas recommends it. But what is this elusive document and how do you create one?
An operating agreement is an internal document that outlines how your LLC will be run, the financial obligations of the members and managerial rights and duties. Often, a bank will require an operating agreement to set up a company bank account or before lending to an LLC.
Here’s what you should include in your operating agreement:
- Company name, headquarters, and address where mail may be sent
- List of owners and their percent of ownership (should equal 100%) with address, telephone number and email address
- Minority investors
- What happens in case of death, disability, divorce or departure of a member
- Procedures for raising additional capital (debt or equity)
- Distributions, including whether or not you want a capital fund set up and amounts
- Level of control for operational members (sign checks, order inventory, hire/fire, etc.)
- Exit strategy – do you want to build the business and sell or is this a long-term commitment?
An operating agreement can be as detailed as you want it to be—and it can actually be helpful to your business, giving you some handy guidelines and policies should an uncomfortable situation arise. That said, best to have your operating agreement in place before your business begins operating—and it should be agreed upon by all parties.
This post was written after a presentation from Sheila Seck with Seck & Associates, a progressive law firm focused on partnering with clients to bring the right team together to address a wide range of business issues.
Flickr Image by Aidan Jones