If you`re starting a business, forming a limited liability company (LLC) can be a great option. Not only does forming an LLC provide you with personal liability protection, but it also offers flexibility in how your business is managed and taxed.

One important document you`ll need to create when forming an LLC is an operating agreement. This agreement outlines how your business will be run and includes important details like ownership percentages, management structure, and dispute resolution methods.

While the creation of an operating agreement isn`t typically required by state law, it`s still a crucial document that can help prevent misunderstandings and conflicts among LLC members. Here`s what you need to know about creating an LLC operating agreement.

Ownership Percentages and Management Structure

One of the most important elements of your LLC operating agreement is outlining ownership percentages and management structure. Decide who will own what percentage of the business and how management decisions will be made. Additionally, determine who will have the authority to manage the day-to-day operations of the business and how much control they`ll have.


Another important element of your LLC operating agreement is how the business will be taxed. LLCs can be taxed as a partnership or as a corporation. In general, an LLC taxed as a partnership passes through profits and losses to the members of the LLC. On the other hand, an LLC taxed as a corporation pays taxes on its profits and may also be subject to additional taxes, such as state franchise taxes.

Dispute Resolution

No matter how well you get along when forming your LLC, conflicts can still arise. That`s why it`s important to include details on how disputes will be resolved in your operating agreement. Consider including a mediation or arbitration clause to help settle any issues that may arise.

Updating Your Operating Agreement

As your LLC grows and changes, you may need to update your operating agreement. Be sure to keep it up-to-date with any changes to ownership percentages, management structure, or other important details.

In conclusion, creating an LLC operating agreement is an important step in forming your business. It can help prevent misunderstandings and conflicts among LLC members, and can provide a clear framework for managing your business. Be sure to include details on ownership percentages, management structure, taxation, and dispute resolution in your agreement, and update it as your business evolves.