The process of forming a limited liability company (LLC) means dealing with substantial numbers of documents and other paperwork. While vital for starting and running a business, creating contracts and agreements is tedious for many, making it easy to put off such tasks.
Some LLC owners don’t bother to create an operating agreement, but it is one business document all companies need. The agreement sets forth the rights and obligations of those involved in your company. It serves as a legal blueprint for standard business operations.
Sound operating agreement clauses
Operating agreements don’t need to be particularly complex, but their terms and clauses require careful construction to protect all parties. Six must-have provisions and definitions to include in your LLC operating agreement include the following:
- Individual percentages of ownership
- How to resolve member disputes (such as mediation)
- How to distribute profits among LLC members
- Member roles and responsibilities
- A strategy for those who exit
- Decision-making procedures
When the agreement outlines what is expected from everyone, it may work as a preventive measure against disputes and other hardships.
Reap the rewards
Although an operating agreement is an internal document to help businesses function smoothly, they come with additional benefits. For example, having procedures already in place if a problem arises saves your company time and money. It can also ease the process of opening business financial accounts and enhance your protection from business liability.
Business formation laws and requirements vary from region to region. To ensure compliance with state-mandated regulations, learn more about what it takes to form an LLC or other corporation in Massachusetts.
