operating agreements
LLCs are a popular corporate structure used by businesses to limit personal liability. An operating agreement is a vital document used by LLCs because it outlines your business' financial and functional decisions, including rules, regulations, and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners.
why an operating agreemenT benefits your llc
An important step to forming a successful LLC is drafting and signing the operating agreement. Once signed, the operating agreement is an official contract binding the business members to its terms. You may be wondering why LLCs specifically require operating agreements and how they benefit your company. The most important function that an operating agreement serves is to protect your personal liability, which is the reason many companies choose this corporate structure in the first place. In addition, it clarifies verbal agreements between members which can help prevent future disputes.
Not only are members of the business protected, but the business itself is protected by the operating agreement. Although Colorado does not require operating agreements, without one, your LLC would be governed by Colorado’s general default rules (the Colorado Limited Liability Company Act). GLO will help you understand why forming your own rules through an operating agreement is more beneficial than applying the state’s default rules. In addition to an operating agreement, GLO will assist you to add on a buy-sell agreement, which allows you to decide how shares of the company will be split up should a member get a divorce, die, or retire. This is important to establish when you have more than one member in your LLC and can streamline the process in the future.
Converting your entrepreneurial ideas into a corporate LLC structure is an important step to your company’s success, so consulting a business attorney, like GLO, will make the process smoother and ensure compliance with your operating agreement and buy-sell requirements. GLO will also assist with the financial and legal matters of your operating agreement and help ensure you include all of the necessary components and rules within your agreement.
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