As of April 2021, North America was home to nearly half of all unicorns on the planet. Asia-Pacific had 33.5% of the unicorns, while Europe had just over 11%. The Middle East and Africa, and Latin America, were the two regions with the fewest unicorns, with only 16 unicorns based in each, according to Statista. Furthermore, 17 of the top 20 unicorns in the world were based in North America or Asia-Pacific.
One of the first steps business owners need to take to ensure their LLC ends up being on the list of unicorns in America, is to set up a solid operating agreement. An LLC Operating Agreement is a legal document that defines your Limited Liability Company’s ownership and member responsibilities. This agreement allows you to specify the financial and working relationships between business owners (“members”) as well as between members and managers. To see a sample operating agreement The Really Useful Information Company (TRUiC) has set up an example on their website.
An operating agreement is required for all LLCs. Below, we’ll go over what an LLC operating agreement is, how they work, and how to get one for your LLC:
Why You Should Have an Operating Agreement
An LLC operating agreement is required in some states. This is sometimes only required if the LLC has more than one member. Even if it is not required by law, an operating agreement serves three important functions:
- It gives you control over your business rather than the laws of your state. In the absence of a written agreement, state laws (known as default rules) govern many aspects of an LLC. In essence, if you do not create your own operating agreement, state law will provide one for you. Some state default rules, for example, provide that members share profits equally, regardless of capital contribution.
- It safeguards an LLC’s limited liability. In the absence of an operating agreement, LLC owners may face personal liability if their business appears to be a sole proprietorship or partnership.
- A written agreement clarifies the details of their business arrangement for all members, reducing misunderstandings and disputes.
What A LLC Operating Agreement Should Include
Identification information should be included in an LLC operating agreement. The name of the LLC, as well as the addresses of the initial registered office and principal business office, are examples of identifying information. The following item should be included: a statement of intent. This is a statement indicating that the agreement is in accordance with your state’s LLC laws and that the business will be formed once the official LLC documents are filed with the state. A statement of purpose is essential to include. Owners should write a statement of the LLC’s purpose, including the nature of the business. It frequently includes an additional statement, such as “and for any other lawful business purpose,” to cover any future changes you may wish to make. Even if you start out on your own, there may come a time when you want to work with one or more partners. The following item in your operating agreement should be a provision for hiring new partners. This provision describes how someone can acquire an interest in the LLC. If no such provision exists and you later decide to add a partner, you can always draft a new operating agreement.
The Next Step
You do not need to file your operating agreement once you have completed it. Few states, however, require LLCs to file initial reports and/or publish notice of formation. Check your local laws to ensure that your state’s requirements are met. In most states, you can find information about LLC formation requirements on the Secretary of State’s website.
It is a good idea to keep a file or binder for important LLC documentation, such as your operating agreement. Keep a copy of the operating agreement for your records and distribute copies to your LLC’s members. Following any significant company events, such as the addition or removal of a member, it is prudent to review and consider updating the operating agreement. With the consent of all current members, an operating agreement can always be amended.
