How To Form An Operating Agreement

To form your own Operating Agreement, you must spend time researching the best practices in the industry your LLC belongs to. You must also ask others or read up on the potential issues that a business like yours might face so that you can prepare provisions for them.

You can start by reading the VA Limited Liability Company Act and use its provisions as the basis for what you will include in your Operating Agreement. 

Details about your LLC

First, provide information about your LLC, particularly its name and registered business address. This proves that your company uses the document. Also include the name and address of your registered agent since the members and the courts should know who is the person that interacts with the state of Virginia on your behalf.

You also need to specify your company’s goals and set the direction for everyone to follow. Indicate when you plan to dissolve your LLC, if ever. Your company can be closed the moment it achieves its goals, so make sure to specify that.

After that, you must provide information about the members of your LLC, specifically their names and addresses. Indicate their capital contributions and interest percentages as well. 

Management style and members’ roles

In this section, specify how your LLC has elected to be managed. There are two management structures, each with its own advantages and disadvantages.

• Member-managed LLCs are run by the members themselves. They handle all of the business operations and are heavily involved in the company’s decision-making process. What’s good about this structure is that the company’s owners personally know what’s happening in the business and can take action quickly. Single-member LLCs who want an Operating Agreement cannot select this structure because of Virginia’s rules.
• Manager-managed LLCs are run by people members appointed for the task. These managers are not members but are given the authority to make decisions for the company, particularly its daily operations. This setup frees members to delegate the tasks they want to be done to people hired for the job and allows them to make better decisions since they can look at the business from a different perspective.

After specifying your LLC’s management structure, provide a detailed description of the roles and responsibilities each member has. This sets expectations and places limits on the tasks and authority that they have.

Also, provide guidelines for concerns related to your LLC’s membership. These include instructions for adding new members, how to transfer membership interests, and guidelines for withdrawing from the LLC.

Limitation of liability and compensation

Include detailed provisions limiting the liabilities of members over the LLC’s obligations. This will protect the properties and belongings they own if the company gets sued for valid reasons such as negligence. 

Don’t forget to indicate the method and frequency of profit distribution among members, as well as how they can be reimbursed when they spend personal funds on behalf of the company.

Dissolution

Lastly, include guidelines for dissolving your LLC when it becomes necessary. The dissolution process involves many steps, and failing to do it properly could result in unpaid debts and deficits in the distribution of profits among members. Specify instructions for liquidating remaining assets as well.