A member-managed LLC operating agreement is a legal document that outlines the rules and regulations for running a limited liability company (LLC) with multiple members. This agreement is essential for every LLC as it ensures a clear understanding of the roles and responsibilities of each member, as well as the overall management of the business.
Before we dive into the details of a member-managed LLC operating agreement, let`s first understand what an LLC is. An LLC is a flexible business structure that combines the liability protection of a corporation with the tax benefits of a partnership. In an LLC, the owners are referred to as «members,» and they have the flexibility to manage the company themselves or hire a manager to oversee its operations.
A member-managed LLC operating agreement is a legal document that governs the way a member-managed LLC operates. It outlines the membership structure, the respective roles and responsibilities of each member, how profits and losses are shared, and the various procedures and protocols for running the business.
The operating agreement should cover the following key areas:
1. Membership and ownership structure: This section should describe the ownership structure of the LLC, including the names and contact information of all the members, the percentage of ownership each member holds, and the process for admitting new members.
2. Management structure: This section should outline the management structure of the LLC, including whether it is member-managed or one or more managers are appointed to run the day-to-day operations.
3. Roles and responsibilities: This section should clearly define the roles and responsibilities of each member, such as who is responsible for managing the financial aspects of the LLC, who is responsible for making key business decisions, and who is responsible for day-to-day operations.
4. Profit and loss sharing: This section should outline how profits and losses are shared among the members, including the percentage of profits and losses that each member is entitled to and the process for distributing profits and losses.
5. Dissolution and termination: This section should describe the process for dissolving the LLC and distributing assets, as well as the circumstances under which the LLC may be terminated.
In conclusion, an LLC operating agreement is a vital document that every LLC needs to have. It provides a clear understanding of the roles and responsibilities of each member and ensures that the LLC runs smoothly. If you are starting an LLC or are already a member of one, we highly recommend that you create or review your member-managed LLC operating agreement with the help of an experienced attorney or legal professional to ensure that it covers all the necessary areas and protects your interests.