LLC Operating Agreement Considerations

Jan 4, 2024 | Uncategorized

A limited liability company (LLC) is a common farm business entity. One of the components of a successful LLC is the Operating Agreement. This is the document the members (owners) sign that governs how the LLC functions and all the rights and responsibilities of the various parties.

Below is a checklist to get you started thinking about how to structure your Operating Agreement.

One way of thinking about all the issues on this checklist is to imagine the worst-case scenario and then figure out how you’d want each scenario to be handled.

Financial Matters
  • What is everyone contributing to the business, financially?
  • How are profits and losses handled?
  • When is the decision made and who decides whether to hand out or “distribute” profits to the members?
Management Matters
  • Who makes the day-to-day decisions (i.e. will the LLC be manager-managed or member-managed)?
  • What is the protocol for making day-to-day decisions?
  • Are there any particular roles, responsibilities, or benefits of any members or managers you want to specify?
Meetings and Voting Matters
  • Will you have an annual meeting and, if so, when?
  • How are members informed about the time and place of meetings and how meetings can be conducted?
  • Who has voting rights and upon what are they based?
“Big” Decisions
  • Will you allow additional members and, if so, who decides?
  • What happens if a member wants to leave or if a member’s interest in the company is somehow passed on to someone else?
  • Who decides whether the company takes on debt?
  • Who decides whether to close the company?
  • Who decides whether existing members can make additional capital contributions?
  • Who decides on amendments to the operating agreement?
  • Who decides whether the company can change hands (i.e. be acquired or merged with another company)?
  • How are all other “big” decisions (i.e. non day-to-day decisions) made?

The purpose of this checklist is to think about these matters before they happen. The more you think about them now, the more your unique interests will be protected.

The next step is to bring all these wishes to your attorney to begin drafting your LLC’s Operating Agreement.

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