The benefits of establishing a limited liability company (LLC) are numerous. One of the biggest benefits is the relative ease of establishing this type of business entity. However, the simplicity of the initial setup may cause some people to overlook a written operating agreement.
Although Louisiana does not require a written operating agreement to form an LLC, it’s highly recommended that you do so. Failing to file a written operating agreement can result in substantial legal headaches down the line.
What you should include in an operating agreement
Operating agreements can help better define the structure of a business. They also help establish a blueprint for the direction a company is likely to take. Operating agreements can help establish equitable decision-making responsibilities amongst owners. You should consider the following to be essential components of your operating agreement:
- Establishing the rights and responsibilities of owners: If you are operating the business with more than one owner, defining ownership rights and responsibilities is crucial. Define your roles. Establish a process for resolving disputes. You should also consider how much of a say each owner has when it comes to making business decisions.
- Financial distributions: You should determine how profits and losses will be distributed between the owners of the company.
- A winding down process: Businesses run their course for any number of reasons. Establishing a business dissolution process at the beginning can help save you significant stress, and headaches should things ever reach an end.
An operating agreement doesn’t have to be in writing. Oral operating agreements are also acceptable. However, a written agreement provides more clarity than an agreement that is merely spoken.
You don’t have to establish a written agreement at the time you file your LLC formation papers. You can create an operating agreement at any time during the course of your business. However, it’s best to address how you wish to operate your business as soon as possible. Doing so will help provide you with a clear sense of direction and can help avoid contentious legal disputes. A skilled legal professional can help you with every aspect of your business formation.