All you Need to Know About: The LLC Operating Agreement

What is the Operating Agreement

The LLC Operating Agreement is a key document for a business organized as a New York Limited Liability Company, especially if that business has more than one owner (the owners are “Members” in LLC terminology). If an LLC business was like a marriage, the LLC Operating Agreement would be like a prenup, parenting agreement and divorce settlement all in one.

Why you should have an LLC Operating Agreement

While the New York limited liability company law provides for some default rules applicable to LLC businesses that do not have an LLC operating agreement in place, the members of the business are well advised to craft their own rules by way of an LLC Operating Agreement (which is actually required by law in New York, Section 417).  The members of the LLC business are given great flexibility to regulate their rights and responsibilities with respect to the LLC, management of the LLC and pretty much everything else that concerns the LLC and the LLC Members. Only very few rules in the NY LLC law cannot be modified by an Operating Agreement.

What goes into an LLC Operating Agreement

The LLC Operating Agreement sets forth the rules that apply to the members of the LLC and the management of the LLC.   It should give answers to the following questions:

Who owns what of the LLC business?  Who contributes what to the business of the LLC?  Who gets how much of the business profits of the LLC?  When are LLC business profits to be distributed?

See:  Ownership, Contributions and Distributions of Profit in an LLC Operating Agreement

How are the members to manage the day to day affairs of the LLC business?  Are there specially appointed Managers to manage the LLC business, rather than management by the LLC members?  Who can vote on non day to day, monumental business decisions affecting the LLC business?

See: Management Provisions in an LLC Operating Agreement

Who has which responsibilities regarding the business of the LLC?  What other obligations do the LLC members have to the business and to the other LLC members?

See: LLC Member Obligations in an LLC Operating Agreement

What happens if an LLC member wants to leave the LLC Business or sell his or her membership interest?  How can new LLC members join the club?  Should the LLC members be allowed to force someone to leave the LLC Business?

See: Buy Sell Provisions in an LLC Operating Agreement

How can the LLC be dissolved?  What happens upon dissolution of the LLC and how are the assets to be distributed?

All these and more are questions to be addressed in an LLC Operating Agreement.  Ideally, you should hire a business attorney who specializes in startup matters and LLC operating agreements to draft your LLC operating agreement.  However, an educated client is the best client and knowledge of the key issues in an LLC Operating Agreement is key for efficient cooperation with a business attorney.


**This post is for informational purposes only.  For actual legal advice contact a business lawyer, business attorney or business law firm**

About Imke Ratschko

Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027 or by email.