Practice Areas

Blog

News

Library

Should my LLC have a written Operating Agreement, and if so, what should it contain?

A: Most state LLC acts, including those of Maryland and Delaware are "default statutes", which control all aspects of the LLC in the absence of an agreement to the contrary.   However, in almost all instances, the statutory default provisions are completely superseded by contract.   Depending on the state of formation, this contract is an organizational document called the "Operating Agreement" or "LLC Agreement".   Put simply, because of the degree to which an operating agreement can control every aspect of a company, it is difficult to conceive of a bigger business mistake than to fail to govern an LLC with a detailed, comprehensive and well-conceived written document.   The paramount issues that should be contained in any LLC operating agreement include, but are not limited to:

• The number and type of members (natural persons or entities);
• Capital contributions;
• Methods of distributions;
• Allocation of profits and losses;
• Rules governing transfer of membership interests;
• Dissenter rights;
• Classes of membership and voting rights;
• Type of management structure;
• Fiduciary duties;
• Dispute resolution;
• Admission and dissociation of members; and
• Dissolution events.

For a detailed discussion of these issues, please download our free book, "An Ounce of Prevention: 9 Legal Tips for Small Business".

FAQ