If you are in the process of creating a limited liability company, drafting an operating agreement should be at the top of your to-do list. A thorough operating agreement can help the owners of a business deal with a number of issues from the distribution of income to the retirement of a partner. If you require assistance drafting an operating agreement for your limited liability company, you should contact an experienced Baltimore legal business solution attorney.
At the Heyman Law Firm, we would be pleased to provide you with the legal representation that your business needs to resolve its legal issues. Our firm has worked with businesses in Baltimore and across the State of Maryland, and we would be honored to work with you. To schedule a confidential legal consultation, contact the Heyman Law Firm at (410) 305-9287, or contact us online.
Contents of an LLC Operating Agreement
A limited liability company (LLC) operating agreement is a document that dictates how an LLC will conduct its business. The State of Maryland does not require that a business draft an operating agreement when establishing a limited liability company. However, there are multiple benefits to drafting an operating agreement for an LLC. For example, an operating agreement can help streamline the winding up of a business.
The following is a list of topics that an LLC operating agreement should address.
Equity Structure
The equity structure of an LLC will have an impact on several factors. One of the primary issues that an equity structure should address is the membership interest of an owner. If there is more than one owner of an LLC, the operating agreement should discuss the share of profits that each partner should receive.
Owners of a business can examine various issues to decide on a fair split of profits. For example, if a member invested 60 percent of the start-up costs, but another member must run the day-to-day operations of a business, the members may agree on an equal split of profits.
The equity structure portion of an operating agreement should also discuss the allocation of profits and losses. Some LLCs choose to impose an equal allocation of profits, losses, and distributions between its members. However, the owners of an LLC are free to choose the type of profit and losses arrangement they wish to adhere to.
Management Structure
An operating agreement should also address the management form of your business. Generally, there are two types of management forms for an LLC: member-managed and manager-managed. If an LLC is member-managed, it means that an owner of the company is responsible for the daily activities and decisions made by a business. If an LLC opts for manager-managed, a manager must be selected, and their authority within the business should be clearly defined.
Other issues that should be addressed in this section include:
- How to appoint a manager
- How often a manager meeting or member meetings should occur
- The term of a manager and the methods used to release or replace a manager
Voting Rights
If an LLC is owned by more than one person or entity, the operating agreement should address the voting rights for the business. One way to allocate the voting rights of members is to tie their voting right to the percentage of their ownership interest. Under these circumstances, the voting rights of a member with 10 percent ownership interest would only carry that much weight.
However, an operating agreement can also be customized to an owner’s specifications. For example, the voting rights of a certain class of members could be made invalid regarding certain issues.
Restrictions on Transfer
The restrictions on transfer section can be used to address a wide range of topics that could affect an LLC. For example, if a member wants to assign their interest to another party, the operating agreement may have certain procedures for transferring an interest. The third-party could receive an economic interest in the business but may have to be approved by other members in order to receive a management interest.
If a member of the business passes away or wishes to retire, this section of the operating agreement should also address that possibility. The operating agreement may set the protocol for buying out a partner or how the assets of a business will be re-distributed after the death of a member.
There are several other provisions that an operating agreement can be used to address. The Heyman Law Firm is ready to listen to your business concerns to determine the appropriate way to resolve your legal issue.
Consult with an Experienced Baltimore LLC Operating Agreement Lawyer You Can Trust
If you need legal assistance to produce an LLC operating agreement, you should consult with an experienced Maryland business advisory lawyer today. The business lawyers at the Heyman Law Firm possess decades of combined legal experience, and we will utilize this knowledge to represent you. To schedule a confidential case evaluation, contact the Heyman Law Firm at (410) 305-9287.