The operating agreement (or limited liability company agreement) for an LLC serves the combined functions of the certificate of incorporation, bylaws and shareholders’ agreement of a corporation. In New York, it is mandatory for an LLC to have a written operating agreement within 90 days of its formation. The operating agreement can be entered into before the LLC is formed.
An Operating Agreements typically sets forth the capital structure of an LLC. Unless specifically stated, profits and losses of each member of an LLC are based on the percentage of valuable contributions made by such member. The Operating Agreement, however, can provide for capital structures as flexible as corporate stock, including preferred interests, non-voting interests, and interests subject to vesting restrictions.
The Operating Agreement also sets forth the management framework of the company, such as stating the required votes necessary for different act of the company, how managers and officers are elected, and the duties of managers and officers.
Like shareholders’ agreements, operating agreements also contemplate how internal disputes and problems are resolved before they occur. Problems that can arise include 50-50 deadlocks, undesirable sales and transfers of interests, valuation procedures and exits by owners.
The operating agreement is the most important document for an LLC and should be crafted specifically for the needs of the business. Our law firm can help you with this, and it would be our pleasure to do so. Contact us today to discuss how we may be of support to you.