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Limited Liability Company Operating Agreements

In recent years, limited liability companies (“LLCs”) have become a standard business entity option for startups and even large commercial entities.  LLCs offer ease of creation and operation while providing liability protection and tax advantages to members.  LLCs do not have the many technical requirements of corporations in formation or operation.  LLCs can be used to avoid double taxation that can occur with corporate entities.  LLCs can also be flexible in the sharing of profits among members.

Despite the ease of creating and operating LLCs, they remain legal entities and require attention to detail to ensure the advantages they offer remain available to members. For example LLCs must be operated separate and distinct from members’ assets.  Every LLC, even a single member company, should have its own financial accounts.  LLCs should be adequately capitalized and the business they do should be done strictly in the name of the LLC.

Another important aspect of successful operation of an LLC is the operating agreement.  An operating agreement serves as a constitution for the company.  The relationships of members among themselves and with the company can be set forth in an operating agreement.  An operating agreement can set forth the broader management principles of the company, such as voting rights and financial obligations.  An operating agreement can and should set forth the terms of the transfer of membership interests in the company upon sale of the interest or death of a member.  An operating agreement can even address the terms of dissolution of the company.

Operating agreements for LLCs are not required in Ohio.  Members of an LLC without an operating agreement must typically look to statutory provisions to address ownership and financial issues.  Those statutes may not be advantageous to members, or may be silent on key issues.  Some business owners may scoff at the relatively small cost of creating an operating agreement for the company and its members.  However, when disputes among members arise, the lack of an operating agreement may result in extraordinarily high legal fees to resolve issues that might otherwise have been addressed in an operating agreement executed early in the LLC’s operating existence.  Moreover,  there remains a lack of certainty in the outcome of a dispute until a court enters a final judgment or the members resolve their disputes..

In many circumstances, lenders or other outside financial supporters require solid operating agreements before financing for the company can be put in place.  Third party lenders want to know how the company is structured, how it will be run, and how issues that may arise among members will be resolved.

Each LLC and its members has different needs for operating agreements.  Cookie cutter online forms do not meet those needs.  The lawyers at Green & Green, Lawyers have experience working with clients forming and operating LLCs that allows them to offer extensive insight in the needs of members and how those needs can be met with well-crafted operating agreements.  If you are planning to establish a new company, or if you are a member of a limited liability company that has not yet entered into an operating agreement, call Green & Green, Lawyers and schedule an important to discuss this business-critical issue.