LLC Agreement or Operating Agreement: Which One Do You Need?
When starting a new LLC (Limited Liability Company), it`s crucial to establish the terms and conditions of your business. To do so, you may need to create either an LLC agreement or an operating agreement. These documents outline the rules, roles, and responsibilities of owners and managers and protect the company`s legality.
But which one is right for your LLC? In this article, we`ll discuss the differences between LLC agreements and operating agreements and help you determine which one you need.
LLC Agreement
An LLC agreement, also known as a membership agreement or company agreement, is a legal document that outlines the ownership structure and management of your LLC. This agreement is only signed by the members or owners of the LLC and will determine how the company is run, including how profits and losses are divided, how decisions are made, and how disputes should be resolved.
The LLC agreement is a critical document as it will govern the internal workings of your LLC, including the rights and obligations of its members and how they interact with each other. It will also establish a clear framework for the company`s governance, which helps minimize the risk of misunderstandings in the future.
Operating Agreement
An operating agreement is another legal document that outlines the management and operation of your LLC. It is similar to an LLC agreement, but its purpose is to define the operational procedures of the LLC. The operating agreement can also be signed by managers and other parties or groups of people involved in the business.
In an operating agreement, you can include details about how the LLC should respond to changes in management or ownership, how it will handle financial issues, how it will be taxed, and how it will allocate profits and losses. In addition, it should outline how the LLC will manage its day-to-day affairs, including the roles and responsibilities of its members and managers.
LLC Agreement vs. Operating Agreement
While LLC agreements and operating agreements differ in their purpose and scope, both documents serve essential functions for any LLC. The main difference between the two is that the LLC agreement focuses more on ownership and membership details, while the operating agreement focuses on the management and operation of the LLC.
Overall, an LLC agreement is a necessary document for any LLC with multiple owners, while an operating agreement is essential for any LLC, regardless of ownership structure. If you`re unsure which one to create, it may be best to consult with a legal professional.
In conclusion, an LLC agreement or operating agreement can help avoid disputes and protect your LLC`s legal status. While each document has its unique purpose and scope, both are crucial for the successful operation of an LLC. Make sure to carefully consider which document is right for your LLC and seek legal guidance if necessary.