What to Look for in an Llc Agreement

Terminating the existence of an LLC as a business entity can be a complex process that involves filing appropriate forms with the state, liquidating assets, paying creditors, etc. Members share assets that remain after payment by all creditors. The agreement should define the resolution procedures. „It seemed so easy! My business partners and I have this – we don`t need to hire this exceptionally brazen lawyer who told us we had to hire her to train our LLC, AND there was nothing on the state`s website about this operating agreement that she kept talking about. „You also need to look at what happens when a member wants to leave the company and sell their ownership shares. Do members have to sell to parties with certain qualifications? What happens if a member passes on their property to a family member who has no idea about the business? For most LLCs, this means that the LLC will continue to exist until it is terminated as provided for in the operating agreement or until it is dissolved under state law. An LLC formed for a specific purpose, e.B the construction and sale of a commercial building, may exist for a certain period of time or until a specific event occurs. This statement states that the operating agreement complies with your state`s LLC laws and that once all appropriate documents have been filed, the company will be formed. Many lawyers will help you file organizational articles and draft your operating contract for a fixed fee. You ensure that all clauses relevant to your business are included and that the agreement complies with all country-specific requirements.

In the screenshot below, you can see the beginning of a draft LLC operating contract that includes provisions such as those discussed above, such as the state law on the LLC, the name and address of the company, and the registered agent. Sometimes a company needs to raise additional capital. Some agreements stipulate that no member may be required to make additional contributions, while others require it. Include provisions on how new members can be admitted, what happens if a member wishes to leave, and measures justifying the exclusion of a member, and exclusion procedures. However, there are additional compliance requirements, and depending on the state your business is located in, one of them may be the creation of an LLC operating contract. As I said in my last article on LLCs, the internal governance of LLCs is largely determined by contracts between LLC members. This contract, called an operating agreement, is at the heart of every LLC. I highly recommend any multi-member LLC to have a written operating agreement. Key elements of an LLC operating agreement include provisions relating to the capital structure (contributions, capital accounts, profit allocations, losses and distributions), management, voting, limitation of liability and compensation, books and records, where applicable. Anti-dilution protection, restrictions on transfer, redemption, dissolution and liquidation, confidentiality and restrictive agreements, as well as general provisions such as applicable law and dispute resolution. Let`s check them out quickly. Capital structure (a) Participation of members.

A member`s interest is often expressed as a percentage of interest. This may vary as new members are added. It is also important to remember that the interest in becoming a member consists of two components: (i) an economic interest and (ii) a management interest. Often, members` interest is expressed in units to give LLC`s equity more of the look of the stock. Some LLCs even refer to their units as „shares” and have an authorized number and issued shares, just like in a corporation. (b) Categories of interests of members. Due to the flexible capital structure of LLCs, it is possible to create the equivalent of equity structures of partnerships or companies. An LLC may have non-voting interests, common interests, preferred interests, conversion shares, profit interests, etc.c) Contributions and capital accounts. Each member has a capital account.

The initial percentage of interest is determined based on the value of the initial capital contributions. A member`s capital contribution to the LLC may take the form of cash, goods, services rendered, a promissory note, or other obligation to bring money or goods or to provide services or a combination of the foregoing. When a member contributes to property or anything other than cash, the value of such a contribution is often negotiated. In addition, members must indicate in the company agreement whether there will be only initial capital contributions or whether members will be invited to make ongoing contributions, or whether there will be any future capital calls. (d) the distribution of profits, losses and distributions. The enterprise contract may modify the standard rule of proportional distribution of profits, losses and distributions among members. The contract of enterprise may grant unique economic rights to each category of units and even modify the rules of distribution among the members of the same category. . . .