It’s Important to Keep Your Operating Agreement Updated
What is an Operating Agreement?
An Operating Agreement is a legal document that outlines the operating procedures of a limited liability company (or LLC). This document is a legal requirement in many states, and is often required to be completed before the business can be registered and operational (in some states). Operating Agreements are typically written by an attorney, and the document outlines the ownership rights and responsibilities of each owner (called “Members”) of the LLC, as well as the management structure of the business. It’s important to keep your operating agreement updated, as your business changes and evolves over time.
An Operating Agreement also outlines the rights and responsibilities of the Members of the LLC, and how profits, losses, and distributions will be divided among the Members.
Why is it Important to Keep Your Operating Agreement Updated?
An Operating Agreement is a very important document for any business entity, as it establishes the legal framework for the business. It is essential to keep the Operating Agreement up-to-date, as the document should be reviewed periodically to ensure that all of the important provisions are still applicable. The Operating Agreement should be updated when any significant changes are made to the business, such as when a new Member is added, when a Member leaves the LLC, when a CPA recommends you change the tax status of the LLC, and much more.
This means your Operating Agreement can vary, depending on a wide variety of issues and topics. A template Operating Agreement will rarely meet all your needs, and in most cases, create potential problems for the Members and the business, should the LLC find itself in a lawsuit.
Therefore, it’s critical to keep the Operating Agreement updated when the business is restructured, or when any of the Members change their roles or responsibilities within the LLC.
When there are changes to the laws and regulations that are applicable to your company, the Operating Agreement should reflect the changes in such laws. For example, if the business is operating in a different state or country, the Operating Agreement should be updated to reflect any changes in the relevant laws and regulations. Additionally, it is important to update the Operating Agreement when the business is undergoing significant financial changes, such as when the business is taking on new debt or raising capital.
In addition to keeping the Operating Agreement up-to-date, it is important to review the document periodically to ensure that all of the parties involved in the business are in agreement with the terms and conditions outlined in the document. This is important to ensure that all parties involved in the business are aware of their rights and responsibilities, and that all Members are in agreement with the terms of the Operating Agreement. This can help to avoid potential disputes in the future.
Finally, it is important to update the Operating Agreement when there are changes to the Members of the LLC. This is important to ensure that all Members are aware of their rights and responsibilities, and that the Operating Agreement accurately reflects the current Members of the business. If a Member gets married, that would be an excellent example of a change to a Member of the LLC, requiring the Operating Agreement be reviewed and possibly updated.
How Do You Keep Your Operating Agreement Updated?
Overall, it is essential to keep the Operating Agreement up-to-date in order to ensure that the business is running smoothly, and that all the parties involved in the business are aware of their rights and responsibilities. The Operating Agreement should be reviewed periodically, and should be updated when any significant changes are made to the business, when the business is restructured or when any of the Members change their roles or responsibilities, or when there are changes to the laws and regulations applicable to the business. Additionally, it is important to update the Operating Agreement when new Members join the business, or when Members leave the business. Keeping the Operating Agreement up-to-date is essential to ensure the smooth running of the business, and to avoid potential disputes in the future.
You have essentially two ways to keep your Operating Agreement updated: Hire a competent business attorney, or use our Couture Operating Agreement generator. The competent business attorney will do — by far — the best job for you and your business, although it will take the most time and cost the most. Our Couture Operating Agreement generator only costs $29, and deliver a MS Word document that can be edited by your attorney. This is by far the fastest and least expensive way to obtain an updated Operating Agreement, although our generator is just an expert system that may not be able to address all your concerns.
What you don’t want to do, is download a free template Operating Agreement from the Internet, unless you are absolutely certain it meets all your needs. And, unless your a tax specialist and trained business lawyer, you won’t know what key phrases and words to check for, to determine whether your Operating Agreement meets the management, tax, voting, structuring and other issues it needs.
Law 4 Small Business (L4SB). A little law now can save a lot later. A Slingshot company.
Author: Larry Donahue
Larry Donahue is an attorney and founder of Law 4 Small Business, P.C. He is licensed to practice law in Illinois, New Mexico and the US Patent and Trademark Office.
