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What should you know about LLC operating agreements?

On Behalf of | Aug 23, 2023 | Business & Commercial Litigation, Business Formation

When it comes to establishing a Limited Liability Company (LLC) in Massachusetts, one pivotal document often takes center stage: the LLC operating agreement. This powerful contract provides a foundational blueprint that sets the stage for a harmonious and successful business journey.

Understanding operating agreements

An LLC operating agreement provides a comprehensive roadmap for business formation. The document includes the roles each member in the company plays along with the rules that govern the operations of the LLC. While most states, including Massachusetts, do not require LLCs to have an operating agreement, you may find it prudent to create one for your business. These agreements serve as contracts between members and outline their rights, while also providing the mechanisms to handle various scenarios that may occur during the lifespan of the LLC.

Essential parts of an LLC operating agreement

An effective operating agreement will include many parts in order to make sure the business runs smoothly. Some common parts of an LLC operating agreement include the following:

  • Membership structure and responsibilities
  • Management structure
  • Decision-making process
  • Profit distribution
  • Process for adding or removing members
  • Dispute resolution
  • Voting rights and responsibilities
  • Process for dissolving the LLC
  • Profit and loss distribution
  • Process for calling and holding meetings

Why you need an LLC operating agreement

An LLC without an operating agreement risks potential disputes and confusion that can disrupt the daily operation of the business. Having an LLC operating agreement allows your company to find a path forward through any disagreements that you might have among members or owners.

LLC operating agreements provide an optional but important outline that defines roles, responsibilities and procedures. Whether your company is a startup or an established business entity, crafting an operating agreement is a wise choice.