Where to Start
An operating agreement is a contract that sets the obligations, financial rights, and duties for the managers and the members of an LLC. This is a requirement in some states, but it is not in Colorado. Is it still a good idea to get one?
It's up to you. If you are the single member of an LLC it could be needed if you may take on partners in the future; for multi-member or manager managed LLCs it is really important to have an operating agreement.
When you hire us to form your LLC, we provide an operating agreement to you. For simple changes like adding or removing a member or manager, in most cases you can safely modify it yourself. However, if you need to change the rights, duties, and obligations of managers, you should enlist the help of an experienced business attorney. Find out more about forming a Colorado LLC, registered a Colorado business and our registered agent services.
Single Member LLC
Because of its intention as a contract to yourself most of the people think this is not necessary just because it could be disregarded or amended when needed. We think that it could be useful in some cases, and we think that the main are: 1- For the transfer of membership interest according to your will and the "transfer on death" provision. Most LLC's members would like their relatives to inherit the company or a part of it when they die, but not all owners have a plan to transfer their ownership. With this provision you ensure the transfer of the company to your relatives. 2- It is required by some banks and financial institutions if you want to open an account.
Multi-Member LLC Operating Agreement
Having an operating agreement when there is more than one member of an LLC is not required but probably should be! We suggest all members sign and keep a copy for safekeeping. Having a signed operating agreement will be useful when:
Ownership interests are in question
Even when there is not a specific capital contribution required of all the members, the members must agree in writing to what their past contributions were and how future contributions will be made.
The scope of management's powers are in question
An operating agreement will set out all the actions a manager has to power to take without member approval and what will require a vote of the members. A manager's authority will be very specific and may include authority to gets loans, buy and sell assets, and sign contracts.
You want to prevent disclosure of sensitive information
An operating agreement can contain non-disclosure and confidentiality agreements. Without an agreement a member will be under no obligation to maintain confidentiality.
You want to place restrictions on transfers
This will avoid your partners from selling their stake without prior permission and eliminate the typical cases in which a third part can vote and have rights in your company.
Operating Agreement Summary
Operating agreements are really important in LLCs to create an atmosphere in which all members and managers understand their rights, duties, and obligations. We recommend you draft and sign an operating agreement in the first 30 days of your company because this process is rarely completed after this period. If you are interested in drafting a custom operating agreement for your company, you can contact our attorney through the contact link on our website.