You’ve decided to form an LLC for your business. Congratulations! Now it’s time to get down to the nitty-gritty details of how your LLC will function. This is where your operating agreement comes in.
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An LLC’s operating agreement is like its constitution. It sets out the rules and regulations for how the LLC will be governed and how it will conduct business. This document is not required in all states, but it’s a good idea to have one even if it’s not required.
The operating agreement should be customized to fit the specific needs of your LLC. Here are some things to consider when customizing your LLC’s operating agreement template:
Choose the right state
The first step in customizing your LLC’s operating agreement is to choose the state in which you want to form your LLC. This may be the state in which you live, the state in which your business is located, or a state that has favorable LLC laws. Once you’ve chosen a state, you’ll need to find an LLC operating agreement template that complies with the laws of that state.
Decide on the LLC’s management structure
LLCs can be managed either by their members (also known as member-managed LLCs) or by a manager (also known as manager-managed LLCs). The management structure you choose will determine who has the authority to make decisions on behalf of the LLC and who will be liable for the LLC’s debts and obligations.
If you choose a member-managed LLC, all of the LLC’s members will have the authority to make decisions and will be jointly and severally liable for the LLC’s debts and obligations. This is the simplest management structure and is best suited for LLCs with only a few members.
If you choose a manager-managed LLC, you’ll need to appoint a manager (or a team of managers) who will have the authority to make decisions on behalf of the LLC. The LLC’s members will not have the authority to make decisions and will not be liable for the LLC’s debts and obligations. This management structure is best suited for LLCs with a large number of members or for LLCs that are managed by professional managers.
Decide on the LLC’s ownership structure
LLCs can be owned by one or more individuals (known as members) or by one or more corporations or other LLCs (known as managers). The ownership structure you choose will determine who will have the authority to make decisions on behalf of the LLC and who will be liable for the LLC’s debts and obligations.
If you choose a member-owned LLC, all of the LLC’s members will have the authority to make decisions and will be jointly and severally liable for the LLC’s debts and obligations. This is the simplest ownership structure and is best suited for LLCs with only a few members.
If you choose a manager-owned LLC, you’ll need to appoint a manager (or a team of managers) who will have the authority to make decisions on behalf of the LLC. The LLC’s members will not have the authority to make decisions and will not be liable for the LLC’s debts and obligations. This ownership structure is best suited for LLCs with a large number of members or for LLCs that are owned by professional managers.
Decide on the LLC’s name
Your LLC’s name must comply with the requirements of your state’s LLC laws. In most states, your LLC’s name must include the words “limited liability company” or the abbreviations “L.L.C.” or “LLC.” In some states, your LLC’s name must also include the word “company,” “corporation,” “incorporated,” or one of the abbreviations “Co.,” “Corp.,” “Inc.,” or “Corp.”
Decide on the LLC’s registered agent
Your LLC must have a registered agent in the state in which it is formed. The registered agent is a person or company that agrees to accept service of process on behalf of the LLC. Service of process is the legal process by which an LLC is notified of a lawsuit or other legal action.
Decide on the LLC’s principal place of business
Your LLC must have a principal place of business in the state in which it is formed. The principal place of business is the LLC’s main office, where the LLC’s records are kept and where the LLC’s business is conducted.
