An operating agreement is used when forming a limited liability company (LLC). It is much like by-laws or a code of regulations used when forming a corporation. The operating agreement is a contractual agreement among the owners (called “members”) of an LLC. Operating agreements are recommended for LLCs of all sizes, even if there is only one owner. The primary goal of an operating agreement is to define:
- The members of the LLC.
- How much of the LLC each member owns.
- How a member can increase his/her share by making additional capital contributions.
- How additional members can be added to the LLC.
- How management decisions will be made.
- Voting rights.
- The duties each member owes to the LLC and to the other members.
- What happens when a member retires or dies.
- How to value the LLC.
- How to dissolve the LLC.