Starting a Small Business: Does my LLC Need an Operating Agreement? - Business Law Legal Blogs Posted by Samir B. Dahman - Lawyers.com

Starting a Small Business: Does my LLC Need an Operating Agreement?

An Operating
Agreement is an agreement among the members of a limited liability company (an
“LLC”) which governs how the LLC will operate. 
It also contains general procedures as well as member’s financial and
managerial rights and duties.

While some
states require LLCs to have an Operating Agreement, Ohio and Michigan do not.  In Ohio, LLCs that operate without an
Operating Agreement are governed by the default rules set forth Ohio Revised
Code Chapter 1705.  In Michigan, such
LLCs are governed by MCL 450.4101 et seq.  Operating Agreements help you guard your
limited liability status, head off financial and management disputes, and ensure
that your business is governed by your own rules rather than your state’s
default rules.  Thus, it is strongly
recommended that your LLC have one.  Here
are a few of their main benefits:

1.   
Operating
Agreements protect your LLC’s limited liability status
.  In single member LLCs, an operating agreement
is a declaration of the structure that the member has chosen for the company
and sometimes used to prove (in court or with the IRS) that the LLC structure
is separate from that of the individual owner. 
An Operating Agreement is necessary documentation that the owner is
separate from the entity itself.  In
fact, many states, including Michigan, have laws saying that an operating
agreement for a single-member LLC is not invalid simply because only one
individual signed the document.

2.   
Operating
Agreements define the LLC’s financial and management structure
.  It is essential for multi-member LLCs to
document their profit-sharing and decision-making protocols as well as their
procedures for handling the additions of and departure of members.  Without an Operating Agreement, even the
smallest financial and managerial disputes can cripple your LLC.

3.   
Operating
Agreements override default rules imposed by a state’s LLC Act
.  In order to do so, an Operating Agreement
generally addresses the following things: 
the initial members of the LLC; the members’ percentage interests in the
business; the allocation of profits and losses among members; the capital
contributions of members; the members’ voting power; and rules for holding
meetings and taking votes; and “buy-sell” provisions, which set out rules for
what to do when a member wants to sell his or her interest, dies, or becomes
disabled.

This internal
agreement, which is agreed upon by the company members, contains provisions for
critical rules and provisions relating to how the company is run.  So if you live in Ohio or Michigan and have
an LLC, it would be foolish not to protect yourself and your business with an
Operating Agreement.

Dahman Law, LLC
is a law firm in Columbus, Ohio which handles commercial litigation, business
law, employment, and estate planning matters for business and individuals. Disclaimer.

Why your LLC in Ohio or Michigan needs an Operating Agreement.

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Samir B. Dahman

Licensed since 2007

Member at firm Samir Dahman, Esq.

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