When starting a business, it`s important to establish a legal entity to protect your personal assets and liabilities. Limited liability companies (LLCs) are a popular choice for small businesses because they offer personal liability protection and are easy to set up and maintain. However, many business owners may not be aware that there are two different types of agreements that are crucial to their operations: the LLC agreement and the operating agreement.
LLC Agreement:
The LLC agreement is the document that establishes the existence of the LLC. It`s a legal contract between the members of the LLC and outlines the basic structure and operations. This agreement is filed with the state when you initially form your LLC.
The LLC agreement includes information about the company`s name, purpose, and member responsibilities. It also outlines the ownership structure of the company and the rights and obligations of the members. Additionally, the LLC agreement includes provisions for how profits and losses will be distributed.
Operating Agreement:
The operating agreement, on the other hand, is an internal document that outlines the day-to-day operations of the LLC. It`s not usually filed with the state and is only required in certain states, such as California, Delaware, Maine, Missouri, and New York.
The operating agreement is typically a more detailed document than the LLC agreement and can include provisions on how the LLC will be managed, how decisions will be made, and how disputes will be resolved. It can also include provisions for adding or removing members, transferring ownership, and dissolution of the LLC.
LLC Agreement vs. Operating Agreement:
While the LLC agreement and operating agreement are both important documents for the operation of an LLC, they serve different purposes. The LLC agreement establishes the existence of the LLC and the basic structure and operations, while the operating agreement outlines the day-to-day operations of the LLC.
In summary, the LLC agreement and operating agreement are both crucial documents for the operation of an LLC. The LLC agreement establishes the basic structure, ownership, and management of the LLC, while the operating agreement outlines how the LLC will be run on a day-to-day basis. As a business owner, it`s important to carefully consider both agreements and work with legal counsel to ensure that your LLC is structured and operated in a way that meets your specific needs and goals.