If you have decided to form a limited liability company (LLC), you are in good company—it is the most popular structure for new American businesses. LLCs avoid the double taxation of corporations and offer liability protection not available to owners of partnerships and sole proprietorships. Government filing duties are also less stringent than with corporations.
You do not even need a written operating agreement memorializing how the members decide to run the business. However, failing to adopt one is a misstep that can cost you time and money. Without a written agreement, Connecticut law will prevail if your company’s members cannot agree on what they once decided. A Connecticut operating agreements lawyer should be involved at the onset of your business to draft this document. Let a skilled attorney at Sparks Law protect the future of your company.
An LLC operating agreement is meant to be a contract between members that defines their duties and rights and addresses issues that members may not remember clearly in the future. A contract binds the parties signing it to the terms in writing. Without a legal document, members could rely on what is in their best interest, or they may incorrectly remember what everyone decided.
At a minimum, operating agreements should include:
Other provisions may include how new members are welcomed, tax structure, and how a non-performing member may be terminated.
Our operating agreements lawyers can help members circumvent misunderstandings that could fester and land them in court. Sometimes, contentious issues that members cannot resolve cause the business to be dissolved.
Connecticut assumes all LLCs will adopt operating agreements. Still, members may believe they have adequately discussed and agreed on how the company’s internal workings will be handled. Absent a written agreement or with a written agreement that is vague, Sec. 34-243d (b) of the Connecticut Uniform Limited Liability Company Act specifies that state law will rule in matters that range from admitting new members, winding up the company, and determining how the members are related to the LLC.
To preserve members’ control over their business, it is best to consult a local attorney. A lawyer at our Connecticut office could draft a detailed operating agreement that addresses a company’s unique concerns.
Why would a single owner opt to form a limited liability company, and should they adopt an operating agreement? An LLC offers its members, whether one or many, protection from the debts and liabilities of the company. This is because the LLC and the owner are separate in the eyes of the law. Proving this status in the event the LLC is sued requires a written operating agreement.
Additionally, the LLC offers a single member the popular pass-through tax structure and allows for the possibility of admitting new members in the future. A single member can head off future problems if other members are added by asking a knowledgeable lawyer to draft an operating agreement early on.
If you are forming a limited liability company, there are steps you must take to comply with state and federal law. One important task you should perform is to ask your attorney to draft a contract that governs how you will run your company. A Connecticut operating agreements lawyer at Sparks Law can discuss your goals and needs in an initial consultation, so call today.