LLC agreements are critically important in order to set up a sound basic operating and financial structure for your Limited Liability Company. It clearly specifies each owner's percentage of ownership, along with decision making powers, responsibilities and share of the profits. It has to include what happens if and when one or more of the owners walks out.
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Most important of all is the part that limits liability on the owner's part. There are many such requirements, as listed below, which call for an experienced business law attorney to draft the LLC operating agreement:
The first four are self-explanatory. The state defaults mentioned refer to the default state laws governing LLCs unless specified otherwise. This means that if the LLC operating agreement does not clearly state what the owners agreed to, then it may not be legally binding.
For example, some states have a default law for LLCs wherein all the owners get an equal share of the profits. A new startup where the owners have unequal ownership percentage will want to clearly specify in the agreement what percentage of the profits or losses should go to which owner.
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Did you know?
Violation of the LLC operating agreement will endanger the limited liability shield in case of a lawsuit.
If an action like an amendment to add a new member to the LLC is not done as specified in the original operating agreement, any plaintiff filing a lawsuit against the LLC can use this violation to pierce the limited liability shield.