An operating agreement governs the financial and managerial rights and duties of the members of a limited liability company (often called an “LLC”). Though many states don’t require an operating agreement in order to properly form an LLC, taking the time to draft one can help your business run smoothly and protect you and your business from costly financial and management disputes. Priori is committed to helping you find the right lawyer to create this important corporate governance document for your company.
Operating agreements contain similar provisions to other kinds of partnership agreements (like bylaws for a corporation) but also contain organizational details and proscriptions specific to the LLC form. Importantly, many states provide default rules for LLCs, while simultaneously permitting LLCs to override such state-supplied default rules by explicitly providing otherwise in the LLC’s operating agreement. For example, in Delaware, operating agreements can include provisions detailing who has the power to make managerial decisions, as well as any procedural requirements for how these decisions must be made. However, if an operating agreement does not explicitly provide rules for managerial decision-making, Delaware awards management of the entity to the members, with authority allocated among members in the same proportion as allocation of profits (e.g., the decisions of members owning 50% or more of the LLC’s profits would control).
Key topics generally covered in an LLC’s operating agreement include:
Identity of members
Capital contribution of members, including situations in which additional capital contributions are required
Identity of managers
Classes and relative powers, rights and duties of members and managers
Procedural requirements for decision-making, including process for amending the operating agreement
Access to information and records
Procedure for winding up
If you have already formed your LLC or are considering doing so, a lawyer can help by drafting an operating agreement that clearly delineates the rights and powers of members and managers and supplies clear rules for how your LLC will operate and who will make critical business decisions. Your lawyer can also ensure that your operating agreement appropriately interacts with your state’s default rules. Priori lawyers can craft an operating agreement for your company--and always offer you the guaranteed Priori discount of 15%.
Depending on the number of members of your limited liability company and plans for investment and growth, the cost of having an operating agreement drafted can vary significantly. When you hire a lawyer in the Priori network, drafting an operating agreement typically costs anywhere from $350-$1000 for a single-member operating agreement and from $750-$5000 for a multi-member operating agreement. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
Frequently Asked Questions
How is an operating agreement different from a partnership agreement and bylaws?
An operating agreement sets out the rules and procedures for operations of entities formed as LLCs. Bylaws and Partnership Agreements address similar corporate governance topics, but only come into use when an entity is formed as a corporation or partnership, respectively.
I already have an operating agreement, but it doesn’t really reflect our current situation? Can I amend the agreement?
Definitely! If you already have an operating agreement but think it isn’t sufficiently customized for your company or no longer reflects the governance structure you want for your business, a lawyer can assist you in amending the document. Provided you observe the procedures set forth in your existing operating agreement, drafting an amended operating agreement is an easy and critical step towards shoring-up your corporate governance.