Resources for Writing a Business Operating Agreeament
Brad Smith • October 25, 2019
Congratulations! You’ve decided to structure your business as a limited liability corporation.
As an LLC owner, you are not personally liable for the debts of your business, and your financial risk is limited to the amount of your investment. Your taxes flow through to you instead of your organization, and you can participate in the management of your business. LLCs are suited toward many types of business ventures, except those of which prohibited by state statute.
Now that you’ve decided to organize as an LLC, you should consider drafting a business operating agreement.
What Is An Operating Agreement?
A business operating agreement “outlines the business' financial and functional decisions including rules, regulations and provisions,” according to the Small Business Administration. It covers the company’s members, managers, and employees.
The operating agreement is meant for internal purposes only and is not filed with any state or federal government agency.
What’s Included In An Operating Agreement?
The SBA and the State of Missouri say that a typical business operating agreement addresses:
- Whether the company is managed by members or managers
- The classes or groups of members and their rights and benefits
- Voting structure for company decisions, including percentage of members’ ownership
- Restrictions on transfer of membership interests
- Holding meetings
- Allocation of income and losses among the members
- Tax elections for the company
Is My Business Required To File An Operating Agreement?
Whether your business is required to draft an operating agreement depends on the state in which you organize.
In Missouri, state statute requires that all limited liability companies
have an operating agreement in addition to articles of organization.
In Illinois, however, no business operating agreement is required despite many mentions in state statute
as well as at least one guide from the Secretary of State. “It is unwise to operate without an operating agreement even though most states do not require a written document,” warns the SBA. “Regardless of your state's law, think twice before opting out of this provision.”
The SBA also mentions that the operating agreement should be kept with core business records and should remain confidential.
Because they cover a vast scope, we recommend seeking legal counsel in drafting the operating agreement for your new limited liability company. If you’re organizing in Illinois or Missouri, please contact us today to get started.
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