Last post provided guidance on compiling the necessary paperwork, namely, the Articles of Organization, to form your LLC legally. Today we continue providing a checklist of the documents you need for your new LLC, courtesy of Nellie Akalp at smallbiztrends.com.
Next up: your Operating Agreement.
Don't stop reading just because this is optional in most states. You will soon discover why an operating agreement is highly suggested, especially if your LLC has multiple members.
The Articles of Organization described in the last post only cover the business' basic info. The Operating Agreement however is a contract, agreed upon and signed by the members. It defines how the business is to be run, how decisions will be made, what happens if someone wants out, and how profits and losses will be absorbed. Don't feel overwhelmed – the key idea is to plan out what it's actually going to look like to operate your business, to agree on said plan, and have the added protection of a binding contract behind the agreement. These five points are generally included in an Operating Agreement:
- Member's percentages of ownership – Ownership can be divided in whatever way works for you.
- How profits and losses will be distributed – Frequently, the division of the profits and losses is proportional to the percentage of ownership each member holds. However, unlike a corporation, an LLC allows you the flexibility to change this if it suits the business.
- Voting rights – Will important decisions require a majority or unanimous vote? How much weight does each member's vote have—does each member get one solid vote (per capita voting) or will their percentage in the company determine the percentage of their vote?
- Dissolving the LLC – True, this is probably the last thing on your mind as you launch your business. But what if an owner passes away or suddenly wants to leave – how will this be handled? Planning it out will make it much smoother if something were to happen.
There are a few more reports you may need to file; check with your state to be sure you have everything in order. For example, to remain in good standing and keep your liability protection, most states require that you file an Annual/Biennial Report. This is a simple form to make sure your basic information is kept up to date with the state.
More info on creating an LLC can be found at: smallbiztrends.com
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