Starting a limited liability company (LLC) is a good option for many Louisiana entrepreneurs due to its flexibility, tax benefits and liability protection. A critical step in setting up an LLC is creating an operating agreement. An operating agreement is a legal document that outlines the ownership, management and operational procedures of the LLC.
Ownership and membership
The first section of your operating agreement should outline the ownership and membership of the LLC. This includes the names and addresses of all members, their percentage of ownership and their capital contributions.
The next section should describe the management structure of the LLC. Will it be member-managed, where all members share responsibility for managing the LLC, or will it be manager-managed, where a designated manager or managers are responsible for managing the LLC? It is essential to clearly outline the roles and responsibilities of each member or manager.
Voting and decision-making
The operating agreement should also specify the decision-making process for the LLC. This is where entrepreneurs determine whether decisions require a unanimous or majority vote. They will also have to determine what happens if there is a tie.
These details should be clearly outlined according to business law to avoid any confusion or disputes.
Profit and loss distribution
Operating agreements outline how profits and losses will be distributed among members. This could be based on ownership percentage or a different arrangement agreed upon by the members.
Dissolution and exit strategies
While it’s never pleasant to start with the end in mind, it is essential to plan for the possibility of the LLC dissolving or a member leaving the company. The operating agreement should include provisions for how the LLC will be dissolved, how assets will be distributed and how a member can exit the company.
Non-compete and confidentiality agreements
It is common for LLC operating agreements to include non-compete and confidentiality agreements. These clauses prevent members from competing with the LLC or disclosing confidential information about the company.
Amendments and modifications
The operating agreement should include provisions for making amendments and modifications to the document. This ensures that the LLC can adapt to changing circumstances and that all members are in agreement about any changes.
Starting your LLC on a solid foundation
Preparing an LLC operating agreement is a vital step in forming an LLC. By carefully considering ownership, operation, and exit strategies, you can help ensure the success and longevity of your LLC.