Operating Agreement

Hello, and welcome to this module, Operating Agreement. Now, this is gonna be specific to if you create an LLC for your business, for business credit. So here’s what we’re gonna to cover. So the first thing I’m gonna break down is, what is an operating agreement. So it’s clear. I’m also going to get down into isn’t is an operating agreement required. I’m gonna break down creating operating agreement, and then after completing an operating agreement, what you should do. So let’s go ahead and hop right in. So what is an operating agreement? Well, an LLC operating agreement is a legal document that outlines the ownership and the member duties of your limited liability company. Okay. So all limited liability companies or LLC should have an operating agreement. And disagreement allows you to set out the financial and working relationships among business owners, IE members, and members, and its managers, because you can have different members who have different financial interests, and then you can have different managers of that particular LLC.

Another thing is, that the form and contents of the operating agreement vary widely. So they can be really, really general. That could be really, really specific depending upon the LLC. Because like I was saying before, the limited liability company is very, very flexible in this nature from a legal, financial and management perspective. But in most cases, they’re going to contain six key sections. Number one, the organization itself, then management and voting any capital contributions, distributions, which is huge membership changes. And then disillusion when it comes to ending the actual LLC. Okay. So article 1 of the organization. So this first section of operating agreement deals with the creation of the company. Article 2 is going to be management and voting. So this section is going to address how the company is managed and how the members will vote. Number three is gonna the be capital contribution.

So this section covers which members have given money to start the LLC article 4 is going to be distribution. So this section provides how the company’s profits and losses are shared among the members. And then also, article 5 is going to cover the membership changes. So this section describes the process for adding or in or removing members of an article 6. This section is going to cover the agreement. That’s going to explain circumstances in which the company must be dissolved or end it. So that’s the operating agreement main parts. Now you can add more or take these away, but these are going to be the foundational components you want to have. Now, when you’re starting out, this is more than likely going to be only for you, but assuming you want to continue to expand your business and grow your business. This is something you definitely want to have in place.

Now, one really quick fun fact that I’ve seen a lot of entrepreneurs do, even myself, is you find yourself partnering or giving profit away, not even profit partnering with people or giving equity and ownership away to people who really should be your employees. And don’t make that mistake, do not make the mistake of making an employee, a partner. You really want to have all of this stuff clearly identified on the front end. So when you start making some money, you can really identify, do I really need a business partner or do I just need to be really, really clear about what specific set of criteria I need to help me in that part of my business and then hire somebody to help me with that. Okay. And, or just form a strategic partnership, which means, you’re just saying, Hey, look, my business entity in your business, into your coming together for this particular section, or I’m hiring you as an independent contractor for services rendered.

And then these services are going to be described as nothing that has nothing to do with your operating agreement, but everything to do with whatever that particular service is case in point, you may need to hire a marketing agency doesn’t mean that the marketing agency needs to become a partner of your company. It just means that they are going to handle the marketing aspect of your business. Same case in point for a, for a bookkeeper doesn’t mean that they need to come in and become your owner or any other part of your business. So I know that’s a little bit random, but it’s very, very important that you understand this and getting this agreement up front in place is going to help you clearly identify if and when you should or should not bring on members and or partners into your particular LLC. And then operating agreement also is going to address a key number of topics.

So anything like, like I was just really describing. So you want to make sure you have all of this stuff in place. Once you start your business, because your operating agreement can be updated throughout any time of the process, but you want to just have a clear beginning with the end in mind. Also here’s a common question is an operating agreement required. Well, LLCs in California, Delaware may Missouri, Nebraska and New York are legally required to have an operating agreement. So if you are in any of these states, you are required to have an operating agreement. Now, in my professional opinion, even if your state does not require an operating agreement, it’s just good business to have an operating agreement in place, even if it’s just you, because should you decide to find someone who potentially may need to be your partner. You can already have the operating agreement in place and then really identify on the front end.

Should you partner with this person, give them equity, have them buy into the company and or should they just be an independent contractor or subcontractor or an employee. Um, so even if an operating agreement is not required, like I’m saying, I strongly recommend you have one. And even if you have business partners like a multi-member LLC and operating agreement will help you prevent any type of misunderstanding, standings in subtle clear X and set clear expectations about partner roles and responsibilities, which is huge. So there’s a random book, not even a random book, a book I’m going to highly recommend you listen to it’s called traction, okay. Traction, traction. Um, and then there’s another one called rocket fuel. Okay? Both of those books are phenomenal books. And then there’s another one called scaling up. All three of those books are really, really powerful books when it comes to creating an organization.

nNow I should have recommended these books in the other previous module, if you were forming a board of directors, but essentially it’s the same exact thing. But if you’re the sole owner of a single member, LLC, then creating operative agreement brings credibility to your LOC. This also helps to ensure courts uphold the limited liability status of your LLC. And then should you decide to bring on other partners, you already have a clear picture in terms of what you want outlined in your operating agreement. Now, when it comes to creating operative agreement, um, it’s really, really simple to do this. Um, you can begin by creating a custom LLC operating agreement, or you can create an account with true link business center. And this will give you access to many other free tools and specialized this kind of business services. So this is a really cool way to go out and create your operating agreement.

Now, you know how to start the guidelines, how to start an LLC guides and tools are completely free and they will never incur any type of monthly fee. But in a previous module, I showed you how to create an LLC. Now there’s other legal forms such as LLC, relevant resolutions, hiring documents. And then you can also have a formal business planning tool and a business model, canvas tool as well, and a lot more. So this is a really, really powerful tool to use. I’ll include this link below for you to take advantage of that when you’re creating your operating agreement. Now, after you create your operating agreement, and once you finish your operating agreement, you do not need to file it anywhere. However, there are a few states that require LLC as a father initial reports and, or publish or notice their information. So check with your local laws and verify what your state’s requirements in most cases, in most states, you can find that information about required for LLC information on your secretary of the states website.

So again, in my professional opinion, it’s always a good idea to keep on file or have a binder to hold the important documentation for your LLC, including your articles of incorporation, your EIN number and your operating agreement. So you want to keep a copy of your operating agreement in your records and have, and give copies to any other members of your LLC. Should you have any multi-member LLC? Okay. Now, when it comes to completing an operating agreement, this is just one of those things you need to do after forming your LLC. So if you haven’t already done, so I want you to make sure you consider the following things as it applies to your specific LLC or your business. So, number one, you already have an EIN number. So that’s already taken care of number two. I’m going to show you later on in the next module, how to get a business checking account, but we want to have that business checking account taken care of.

We want to make sure we register your LLC for state taxes. Should you decide to incorporate in one of those states that have state taxes, you want to also set up an accounting system. So in opening up banking, I’m going to break down how to at least informally put an accounting system in place to help you track your revenue, then you want to obtain any type of licenses and permits when it comes to your particular LLC, and then get business insurance, should it be applicable for your particular industry or LLC to limit liability as much as possible, even on the insurance side. So these are the things that you want to complete after the operating agreement. So again, I’ll include the specific lien to have outline below this video and just take immediate action and get this stuff done. Set that clear future begin with the end in mind today. And I will see you in the next month.