Operating agreement preparation is an essential part of forming your own company. This is true especially if you have other co-owners, but it is also applicable even if you are the sole owner of your business. An operating agreement lets you structure your working relationships and financial responsibility in a way that would best suit your business.
Usually, during operating agreement preparation, you decide on how much each business owner’s percentage in the business will be. Questions such as how much of the profit will you get, and how much would they get would come into play.
It should also outline the each owner’s rights and responsibilities, how to handle the process of adding a new business owner, and actions that will be taken in case one of you decides to leave the business.
Many states do not require business owners to make operating agreements but it would make good business sense to have one. The main point of operating agreement preparation is to make sure that courts will respect your limited liability in the company. This is also good to resolve future management and financial disputes between the other owners.
Each state has state laws that govern Limited Liability Companies that can only be overridden by the presence of an operating agreement. For example, in the absence of an operating agreement, the default rule for most states is that each business owner is required to divide the profits and losses of the business equally.
In case you and your business partners do not have the same amount of investment put into the business, the default law that applies to profit sharing is the state law. If you have made an operating agreement preparation, on the other hand, then in case of disputes over the profits, you will have something clear and in black and white that will protect your investment in the business.
Your operating agreement preparation should include many things. Here are some things that you might want to consider:
• Each member’s percentage of shares in the loss and profit of the limited liability company
• Each member’s rights and responsibilities in the business
• Each member’s power to vote over specific kinds of issues
• Division of losses and profits, called “distributive shares” - Usually, business owners prefer that each owner gets a share of the profit that corresponds with his or her investment. If you want to arrange something different from this, you must follow some rules that apply specifically for “special allocations”
• Management and day-to-day operations of the limited liability company
• Rules that will govern voting, meetings (frequency, venue, etc). The power of each owner to vote may be based on the percentage of his or her interest in the business, or you may also decide to give the decision of each owner equal weight
• Provisions governing buyout process, in case a member dies, becomes disabled, or decides to sell his interest in the business
• How should disputes be settled
These days, many software programs are available in the market that can help in drafting this agreement, but the best way to make a good operating agreement preparation is with the help of a lawyer.
Our expert Los Angeles attorneys specialize in business law including preparation and drafting of vital documents. Visit our website at http://www.expertlosangelesattorney.com/ and avail of our free case analysis.
Source: http://www.ArticlePros.com/author.php?Alva Pao-Pei Alfonso
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