When you are planning to open a limited liability company (LLC), creating an operating agreement is critical. In fact, it is often a legal requirement for LLCs in New York and many other states.
With a well-drafted operating agreement, you can customize the terms of your LLC according to your needs and those of your business partners or co-owners. If this is your first business, you might not know what to include in your agreement.
Here are some must-have provisions to consider adding.
Member financial interests or shares
This provision allows you to define the percentage of ownership of each member. You can also use this section to decide how each member receives an income and their rights according to their degree of ownership.
Member departure procedures
Not all business relationships succeed. As such, a member or partner may want to depart the company at some point. Ensure your agreement clearly defines the steps and procedures required to leave the company.
Member dispute resolution
Every business with more than a single owner or member will benefit from an operating agreement with provisions addressing disputes. Instead of immediately turning to litigation, you can choose to address the conflict through mediation, arbitration or continued negotiations.
Of course, you can add additional terms and provisions to your operating agreement. Others to consider include:
Other beneficial terms to include are:
- Voting rights
- Management structure
- Member buyout provisions
- Business dissolution procedures
Before you open your business to the public, study up on the legal side of operating a business in New York. Someone with knowledge of state business and contract laws can provide additional guidance.