How To Form An Operating Agreement

Now, let’s proceed to making that Operating Agreement for your LLC. You can create your own by following our tips below, or you can hire a lawyer to draft one for you. We suggest trying it out yourself first if you have the time, then just make a legal professional review it for any loopholes and other amendments. It might help you save on costs.

Plus, and we can’t emphasize it enough, before starting, make sure to read the Missouri Limited Liability Act for more information on how the state would govern your LLC using its default laws. You can use this as a basis for the provisions you’ll be making in your Operating Agreement.

Details about your LLC

Start by providing information about your LLC, including the name and address of your registered agent. The information you provide in this section proves that the Operating Agreement is used by your company. 

Your LLC’s business purposes

Next, include a section that explains the reason for your LLC’s existence. These will serve as your company’s mission and vision, leading it toward a clearer direction. You must also specify your LLC’s intended duration in this section. If you want your company to continue doing business after it achieves its initial purposes, indicate that here, too.

Information about the LLC’s members

After that, you must provide information about your LLC’s members. This includes their name and address, as well as their initial capital contributions and their interest in the company. This section will prove the identity and ownership of every member involved in your business.

Guidelines for membership concerns

In this section, provide guidelines or instructions for handling concerns related to your membership. These include instructions for adding new members, transferring membership interests, as well as withdrawing from the company. If your LLC allows withdrawals from its membership, you need to write down the consequences of leaving.

Your LLC’s management structure

After that, you must specify your LLC’s management structure or how your company wants to be managed. There are two structures for LLCs: member-managed and manager-managed. 

Member-managed LLCs are operated by the members themselves, where you take on more active roles in the daily management of the company. Meanwhile, a manager-managed LLC is run by managers that you have appointed for the task. They are responsible for the daily activities of the business. In this setup, the members are only involved when they have to make company-wide decisions.

After indicating your LLC’s management structure, include a detailed description of everyone’s roles and responsibilities inside the company. This limits the tasks each member is assigned to do. It also sets expectations so that each person knows what to aim for when working.

Guidelines for meetings and voting

In this section, provide guidelines for your company’s procedures regarding meetings and voting. Include specific instructions on how to organize and schedule meetings, notify all members about them, and conduct meetings while someone takes minutes. 

Your accounting system

After that, provide a detailed description of your company’s accounting system. This includes your processes for monitoring cash flow and financial transactions, your record-keeping methods, and how you create reports to be presented during meetings. 

This section is very important as it provides your LLC with clarity on how to handle finances, helping you avoid misunderstandings or disputes related to profits. Investors will also look at this section to determine whether your company is trustworthy or not.

Details regarding the distribution of profits and losses

Next, provide a detailed set of instructions for the distribution of profits and losses among all members. These are usually divided and distributed according to interest, but you can tweak that in your Operating Agreement. Be as detailed as possible so that all potential confusion with regard to the matter is dealt with before it happens.

Guidelines on handling disputes

In this section, you need to provide specific and detailed instructions on how to resolve disputes that arise in the company. The instructions provided in this part of your Operating Agreement should look like this:

1. Prioritize solving the dispute between the affected parties.
2. Next, bring to the attention of the membership so that everyone can help defuse the situation.
3. If all efforts to resolve the issue aren’t working, then your company can hire external mediators to help settle the issue and solve the problem.

Amendments and severability

You must also include provisions allowing you to amend or modify your Operating Agreement. This is so that you can continually update the document as changes occur to your business. 

Then, don’t forget to add a severability clause. This is so that you will be able to remove provisions that have been deemed illegal or unenforceable by the court—it’ll be helpful in the event that your LLC achieves its initial purpose but does not dissolve and is sold to new members. Instead of having to create a new Operating Agreement, all the new members need to do is remove older provisions that won’t have any benefit to the existing business.

Guidelines for dissolution

Lastly, make sure to provide clear and complete instructions on how your LLC handles dissolution. There are several reasons for your company to get dissolved, but regardless of the reason, your business has to know what to do when it happens so that debts do not remain unpaid and the remaining assets are liquidated and distributed to all members. Thus, provide clear and complete instructions on your LLC’s dissolution process.