A limited liability company (LLC) is an organization with a flexible structure that is detailed in a legal document called an operating agreement. An operating agreement is typically signed by all business owners, or members, and considers the function of the organization as well as working relations among all members and managers.
Do You Need an Operating Agreement?
Although Texas law does not require that an LLC has an operating agreement, it is suggested for both multi-member LLCs as well as sole owners of LLCs. An operating agreement can bring credibility to an organization and will help the court uphold the limited liability status of your company. If you have multiple members, an operating agreement will detail expectations, roles, and responsibilities to avoid misunderstandings.
Key Sections of an LLC Operating Agreement
Every LLC operating agreement varies in content, but most contain the following sections:
- Organization – This section details the creation of the company, including when it was initiated, founding members, and ownership structure. It also details the percentage of ownership of each member.
- Management and Voting – This section describes how the LLC is managed and when and how members may vote to make decisions regarding the organization.
- Capital – This section details the LLC’s startup funds and considers how ownership percentages will impact money raised.
- Distributions – This section describes how LLC profits and losses are divided among members.
- Changes in Membership – This section provides details for changing membership, including a process for adding and removing owners.
- Dissolution – This section addresses the dissolution of the LLC and how members are responsible for the affairs of the organization.
Other sections of an operating agreement may address meetings, disputes among members, check signing, and other essential topics. An experienced LLC attorney can guide you through the process of developing an operating agreement that addresses all of the needs of your company.
Completing and Updating an LLC Operating Agreement
Once you complete an operating agreement, all owner-members should review it. Although you do not have to file operating agreements anywhere, you should keep it in company records and distribute it to all LLC members.
You should update the agreement any time a major company event takes place. This may include:
- adding or losing a member,
- obtaining or losing significant capital,
- changes in management or structure,
- changes in distribution, or
- another event that significantly changes a key section of the document.
Pros of LLCs and How an Operating Agreement Can Help
Many business owners choose to create an LLC because of the many benefits, including enhanced credibility with partners, lenders, and suppliers. There is no residency requirement for LLC owners, as they do not need to be U.S. citizens or permanent residents. Corporate tax returns are not generally necessary. LLC owner-members report profits and losses on individual income tax returns. This allows organizations and owners to avoid double taxation. LLC members have legal protection from debts and obligations of the business. If an LLC is sued, owners may not automatically be held individually liable.
Contact an LLC Attorney at Brylak Law for More Information
An LLC lawyer at Brylak Law can answer your questions regarding your LLC. Call us today at (866) 496-3815.