What are LLC “Operating Agreements” and why do you need one? Short answer is the OA defines the rights and roles of the various owners and interest holders in a limited liability company. Who gets what, who can or can’t do what. It’s an agreement between all Members of an LLC. Undertaking such an agreement should not be done lightly – there’s negotiations, tax implications, questions of ownership of business assets. It’s not “just a form”.
I find limited liability company structures fascinating. They are flexible enough to accomodate many investor needs, but can also be as simple as a basic corporation. For example, a basic principle of business ownership is that a person who owns part of a business should have some say-so in how the business is run; and also get a part of the profits (that’s the whole reason for taking the excursion of owning a business). In a corporation that’s pretty simple – one share gets one share of the say-so in corporate decision making, and one share of the profit split.
FLEXIBILITY IN OPERATING AGREEMENTS
LLCs however allow the owners to turn this structure on its head in the operating agreements. The right to make decisions for the business, and the right to receive profits from the business, can be split apart in an LLC. For example, one could have a right in an LLC to receive profits (“economic interest” is the statutory term in North Carolina) but have no right to vote on company affairs. Just the opposite, one could have almost complete decision making authority in an LLC, but only the right to receive a portion of the profits. This can be structured in as many ways as their are investors.
Contact me if you have any questions on business transactions. In western North Carolina, Asheville, Waynesville, Hendersonville at (312) 671-6453.
Email me at: palermo@palermolaw.com.
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