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If you follow our blog, you may have already figured out which legal entity your business will be. If you are not going into this endeavor alone, it is extremely important that you, and your partners, create and sign an agreement.
An operating agreement is a standard procedure for anyone creating and owning a piece of an LLC. Although not required in the state of North Carolina, some states do require that a multi owner LLC have an operating agreement before beginning business operations, those include Delaware, New York, Maine, California, and Missouri.
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]You may be wondering, what is an operating agreement? According to howtostartanllc.com, the form and contents of operating agreements vary widely, but most will contain six key sections: Organization, Management and Voting, Capital Contributions, Distributions, Membership Changes, and Dissolution.
So, what does this mean for you and your business? To break it down we will go through each part.
Organization
This section is used for listing the members of your organization and more importantly, how the company is shared. Is everyone an equal member? This is essential piece to begin your new journey.
Management and Voting
Unless you have more than two members of your organization, this section doesn’t have to be that in depth. You will need to determine how to make your business decisions. You can either appoint a member to make the final decision or have an official vote.
Capital Contributions
Did anyone put in money to get the ball rolling? This is the section that would lay that out. Most companies would need some startup capital, equipment, an office, etc.
Distributions
One of the most important pieces of the agreement. How are the profits and losses going to be handled by the members? This may be an easy piece if the organization piece is all in line.
Membership Changes
It is always good to write out what will happen in the case you want to bring another member into the LLC. Or, on the other hand, if someone wants to leave.
Dissolution
Most businesses come to an end at some point. What will happen then? How will the business wrap up? This is where the members should put their heads together and play this scenario out.
Once all of this is in writing, it doesn’t mean anything until it is signed by each member. Be sure to get this notarized. Knowing that each member knows their role and what is expected of them will ensure a smooth beginning to the business. Keep the agreement with all your official documents and make sure everyone that signs it has a copy.
Your charlotte small business accountant needs access to this agreement to make sure they know how to handle the financial side of the company. This will help them make recommendations, create the financial plan, and do individual tax preparation for each member during tax time.
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