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Alison Cole asked:




An operating agreement is the code by which Limited Liability Companies (LLC) operate. In many states an operating agreement is not compulsory because in its absence the state law will apply by default. That may not be suitable situation for many LLCs, which require specific provisions for their management.

Though an operating agreement is not required to be in writing, it is prudent to have it properly documented and signed by all members, or by the sole member in the case of a single-member LLC. This will avoid confusion and misunderstandings, and also clarify the limited liability status.

An operating agreement basically covers the rights and responsibilities of members, how the company will be managed, and the manner in which the profits and losses are to be split. Due thought has to be given to such points, because they can have long-term impact on the LLC. Apart from routine details, the major points to be covered in an operating agreement include members’ voting rights, profit sharing, management, meetings, accounts, and span of life.

The voting could be either ‘per capita’ (each member having one vote) or according to percentage of interest the members hold (if a member has 75% of the investment, he carries 75% of the votes). Whether the profits are to be allocated in the pattern of the interest held by each member or according to some other formula should be clearly stated. There is no stipulation in state laws that an LLC should hold annual meetings or draw up reports of accounts, but it is desirable to set out rules about these.

The question of what happens if a member dies or quits has to be considered. It is better that these eventualities are adequately covered with, for example, a buy-out scheme. A clear understanding about the manner in which the members can draw the profits allocated to them is desirable. It is also important to specify how the business will be managed and what responsibilities each member will have.

Software is available to help in drawing up an operating agreement, or a legal expert can be consulted.

Jay Carmichael asked:




If you currently own a business, or plan to change the structure of your business, you need to research the many possibilities you may have. Should you stick with a sole proprietor status or form a New Limited Liability company? What Limited Liability options do you have? Hopefully, this article will give you a brief birds’ eye view of your available options.

A Limited Company, also known as a Limited Liability Company, LLC, or Ltd. can be a very worthwhile business formation. Limited Companies by nature protect their investors by you guessed it, limiting their liability. There are two types of limited liability companies. One is a Public Limited Company or PLC and the second more common formation is a Private Limited Company which is commonly known as a Limited Company.

A Private Limited Company is a relatively inexpensive formation that is not riddled with as many legal hurdles as its public counterpart or some other business formations. For example, Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure requires no corporate minutes or resolutions and is easier to operate. A Limited Liability Company will also often benefit from significant tax advantages.

Public Limited Companies can be listed on the Stock Exchange or the Unlisted Securities Market. A Public Limited Company will get you the financial attention you desire, but will also require more legal support that will raise the legal overhead cost in addition to requiring a larger more organized foundation. For example, A PLC must have at least two directors and a secretary where a Private Limited Company only requires one of each. Either choice will gain you respect from potential investors as Limited Companies as a whole are usually more complex and/or organized than other more simple alternatives like sole proprietorships. Another advantage to limited companies is they inherently get the advantage of the business operating as its own entity which means it will not only live indefinitely but in most cases your personal assets will be much more protected in the event something were to go wrong.