Do You Need an Operating Agreement for Your Small Business LLC? Here is my LLC Operating Agreement Checklist.
As you may know, a “corporate kit” usually includes a pre-printed, generic limited liability company operating agreement. There is no telling how complete these are and whether or not they were prepared by a corporate attorney. Certainly an off-the-shelf operating agreement is not customized for your needs. I recommend having a New York Small Business Attorney (corporate attorney or startup lawyer) review and/or draft and negotiate the operating agreement — especially when you have two or more members. Here is a checklist of some of the items to consider addressing in your operating agreement. For that matter, these are some of the items that you should consider addressing in a shareholder agreement or a partnership agreement.
- General Provisions
- Purpose of LLC — Will this be a special purpose entity?
- Scope of activity — Geographic boundaries, etc.
- Limitations on operations — Incurrence of indebtedness, other?
- How many classes of membership? What are the membership rights and obligations of each class?
- Capital Contributions to the LLC
- Have there been any to date?
- Percentages
- Additional contributions
- Ability to call
- Default provisions (straight dilution or penalties?)
- Governance of the Limited Liability Company
- Day-to-day management of the LLC
- Company opportunities
- Conflicts of interest
- Major decisions
- Indemnification
- Resolution of deadlocks
- Arbitration
- Buy/Sell
- Methodology for determining price — By Triggering member, Appraisal, or Arbitration?
- Distributions of Profits / Allocation of Losses
- Timing
- Amount
- Capital vs. profits
- In-kind distributions
- Admission of Additional Member(s) to the LLC
- Any new members contemplated?
- Terms and conditions of admission
- Withdrawal of Member from the LLC
- Ability to withdraw
- Confidentiality
- Non-compete
- Other considerations?
- Transfers of LLC Membership Interests
- Permitted?
- To estate planning vehicles
- To family members/affiliates
- Third party transfers
- Right of first offer/right of first refusal
- Other conditions to transfer
- Termination of the Company
- Fixed term?
- Trigger events?
- Standard (involuntary bankruptcy, court order, etc.)
Of course, it is best to discuss the above New York LLC Operating Agreement Checklist with a New York Startup Attorney or Business Lawyer.