How To Form An Operating Agreement

Before you start working on your Operating Agreement, make sure to review Hawaii’s Uniform Limited Liability Company Act to get an understanding of the state’s default rules for LLCs. The state’s laws are a good basis for your LLC’s customized regulations. You can then use its provisions for your company or slightly tweak them to suit your business’s needs. 

After that, look into the best practices for your LLC’s industry in Hawaii. Read up on the considerations businesses have to make in the state so that you can include provisions for them in your Operating Agreement. 

LLC information

First, indicate the name and address of your LLC, and specify the name and address of your registered agent as well. Your registered agent will be the one receiving correspondence from the state for your company and will interact with them on your behalf.

Next, indicate the names and addresses of every member of your LLC. Specify their capital contributions and respective interest percentages as well. This part serves as proof of ownership of your LLC and will become a reference for when the court reviews your documents. Indicating interest percentages also helps you establish transparency when it comes to the profits all members receive from the business.

Business purposes

After that, specify the purposes for your LLC’s founding. These will serve as your mission and vision statements, setting a direction for your business. Be as detailed as possible because if your goals are attainable, you just might attract investors who will believe in them.

Management style and membership roles

In this section, indicate how your LLC will be managed. There are two management structures: member-managed, where the members are the ones running the business, and manager-managed, where the members entrust all management to a manager. 

Specify in detail the roles and responsibilities of each member. Doing this removes all confusion with regard to the tasks everyone does and prevents potential disputes related to the matter. It also sets expectations everyone will follow. Don’t forget to provide instructions for adding new members, transferring membership interests, or withdrawing from the membership.

Accounting system

In this section, you must provide a detailed explanation for how your LLC monitors and records financial transactions and provides financial reports to members. Specify your tax treatment and fiscal year here as well. Investors will read this part to see if your business can be trusted to handle finances with integrity.

Limitation of liability

You must include provisions formally separating your LLC from you and any co-members. This reinforces your limited liability status and protects your personal property if your business gets sued. Courts will honor the provisions you include here.

Dispute resolution

A good Operating Agreement provides clear instructions for resolving disputes that arise during the normal course of business. Your guidelines here must prioritize solving such problems internally before seeking help from outside sources such as The Mediation Center of The Pacific.

Dissolution

Lastly, provide guidelines for the proper dissolution of your company. There are a number of reasons that could trigger your LLC’s closure, but regardless of them, you must be able to handle it properly. Include a step-by-step process that begins with getting consent from all members, followed by notifying suppliers, liquidating remaining assets, and formally closing the business.