Tips for Businesses Using Business Operating Agreement Templates

Limited Liability Corporations (LLCs) are designed to protect the principals from personal liabilities. It is always important to check the regulations in your own state to make sure you are in full compliance with the rules pertaining to this business formation.

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PDF Template - business operating agreement llc

Using a business operating agreement template allows you to create the document quickly and efficiently while offering you the legal protections you need.

What We’ll Cover Here:

  • Protecting Your Personal Assets
  • Operating Agreement Particulars
  • Why Operating Agreements are Needed
  • Helpful Resources

Protecting Your Personal Assets

One challenge of forming your own business is the potential of putting your personal assets at risk. One way to minimize this risk is by forming a Limited Liability Corporation (LLC). An LLC may be comprised of multiple people or business entities. There are limits on who may be part of an LLC and in general an LLC may not include:

  • All partnerships are prohibited from being part of an LLC
  • Corporations are typically excluded as part of an LLC
  • Prohibitions exist for non-resident alien participation in LLCs
  • Types of corporations which may not be part of an LLC include insurance companies, financial institutes and domestic international sales corporations
  • Generally, anyone under the age of 18 cannot be included although some states do make allowances for a minor’s participation

Anyone considering forming an LLC should check their specific state rules pertaining to formation, reporting requirements, and annual filing requirements.

Operating Agreement Particulars

Having an operating agreement in place allows all parties to understand their roles and responsibilities. This document also provides the guiding principals and under what conditions the LLC may consider dissolving.

Some of the important clauses which should be included when you are customizing a business operating agreement template include:

  • Corporate name
  • Name(s) of parties entering into agreement
  • Definitions as required for explanation to signatories
  • Company formation information including name, address, offices, etc.
  • Specific contributions to company
  • Additional contributions which may or may not be required
  • Distribution of company profits
  • Accounting method to be used by company
  • Clarification of company fiscal year
  • Management of business
  • Transfer of interest in the business
  • Dissolution of business and disassociation of members of business
  • Jurisdiction under which company agreement operates
  • Rights of creditors and other third parties
  • Signatures of members
  • Schedule of contributions

Some states do allow for a single member LLC so if this is in your plans, make sure you have taken the time to determine if your state is one of them that allows this type of election.

Why Operating Agreements are Needed

It is important to remember the basic need for an operating agreement is so everyone involved understands everyone else’s participation in the company to be formed. Each party generally makes a financial contribution either in the form of cash or hard assets. The percentage of contribution also generally reflects the member’s right to participate in the distribution of asserts of the corporation either in the form of a payout or in the event of the company being dissolved.

When using an business operating agreement template, it is imperative that the day-to-day operation of the business is spelled out. Furthermore, it is also important when there are multiple parties to the agreement that there is specific information pertaining how to handle one member’s request (or in some cases, the necessity) withdrawal from the business. These are important areas of discussion which should be completed before the business operation agreement template is fully customized.

Helpful Resources:

Signature Requirements for LLCs

Once you have fully customized your business operating agreement template, you will have to gather signatures from all interested parties. Before doing this, find out what your specific state requirements are because there are still states which do not allow for e-Signatures on operating agreements or other corporate documents. If you live in a state which does allow for e-Sign, then you shouldstart your free trial of Nitro today and gather your signatures to prepare your operating agreement for submission to your Secretary of State.

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