Operating Agreements Provisions
All entities with one or more owners should have agreements between/among the owners which govern their relations with respect to the entity. For corporations, the agreement is a Shareholders’ Agreement, for limited partnerships, a Limited Partnership Agreement, and for a limited liability company (an “LLC”) an Operating Agreement. Operating Agreements should address such matters as (i) the percentage of the company each member of the LLC owns, (ii) how decisions are made (for instance by majority or unanimous vote), (iii) whether the members of the LLC are subject to any non-compete provisions, (iv) whether the members have any specific goals or obligations (including an obligation to contribute funds), and (v) what happens to a member’s interest (assuming he or she is an individual, as opposed to another entity), if he or she dies. Without an Operating Agreement the laws of the state where the LLC was formed will govern the relations among the members, and those laws may not reflect the members’ wishes. Thus, I recommend to my clients that wish to form an LLC that they enter into an Operating Agreement as soon as possible so that all members are aware of and have agreed on the terms which will govern their relationship with the LLC and amongst themselves.
If you would like to know more about LLCs and Operating Agreements, please contact Stephen Goldstein at Sgoldstein@sgoldlaw.com, or at (212) 586-5555.