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Information about LLC agreements

On Behalf of | Dec 2, 2022 | Blog, Business Transactions And Litigation |

Creating a limited liability company in California may be an effective way to protect yourself from claims made by clients, employees or other parties. If a judgment is rendered against the business, only company assets can be used to satisfy it. One of the key elements that separates an LLC from other types of firms is the presence of an operating agreement.

The importance of an operating agreement

Executing this type of document is often an effective way to legitimize the fact that you operate an LLC. Otherwise, it may be possible for a customer, a government tax agency or someone else to claim that you should be personally liable for actions taken by your business. This type of document can also be used to preserve or clarify the terms of a verbal agreement. As a general rule, it is much easier to enforce a written agreement as opposed to a verbal one in a business lawsuit.

What to include in an operating agreement

There are many details that you may want to include within this document including how equity or responsibilities are divided between owners. It may also include information as to when owner meetings take place, who can buy a current owner’s stake in the business and how profits and losses will be allocated.

Make multiple copies

It is a good idea to keep a physical copy of the document in a safe or other secure location within company headquarters. In addition, you may want to keep an encrypted copy on a secure server as a failsafe. This will minimize the risk that the agreement is lost while also minimizing the risk that anyone outside of the company sees it.

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