Sign New Jersey Banking LLC Operating Agreement Free

Digital signature operating agreement template

- [Presenter] Owner disagreements, ambiguous responsibilities, personal lawsuits, these are some of the problems that can emerge when you start a business. An LLC Operating Agreement can help prevent many of these problems from arising. In this video, we'll go over what an operating agreement is, why you need one, what elements make up an operating agreement, why it's a living document, and how to get a custom operating agreement for free. The following is for informational purposes and is not meant as legal or tax advice. Before acting on any of these information, please consult with your lawyer. (gentle tune) What is an operating agreement? An LLC Operating Agreement is a document written on behalf of its owners, who are defined as members of the LLC that establishes ownership of the LLC, outlines the rules by which you govern your business, and clarifies the duties and responsibilities of members. Why should you create an operating agreement? Some states legally require an LLC to have an operating agreement, usually for Multi-Member LLCs. However, you are not required to file it with the Secretary of State. But even if your state does not legally require your LLC to have an operating agreement, there are still many reasons to create one. For Single Member LLCs, an operating agreement gives your business credibility. An operating agreement strengthens what is known as the corporate veil. This can help prevent people from going after your personal assets in the event of a lawsuit. For Multi-Member LLCs, not only does an operating agreement strengthen your corporate veil and add credibility, it also prevents misunderstandings by having clear rules on the responsibilities of different members and how things will be voted on. Additionally, as your company evolves and grows, you may need to provide a copy of your operating agreement when working with investors, lawyers, and courts. What's in an operating agreement? There are six important sections or articles to consider when creating an operating agreement. It's a good idea to be familiar with this information but you don't need to memorize it since we have guides and templates on our site that will walk you through the process. Let's go through each article one by one. Article 1: Organization. The first article deals with the creation of the company, which state it was formed in, when it was formed, and who the members are, as well as their ownership interests. Two common ways of expressing ownership interests are percentage ownership that will add up to 100% between all members, or membership units, which are similar to shares of stock. Each member or owner will be listed in this section, along with the units and percentage of the company that the particular member owns. This can translate to voting rights and a share of the company's profits. Article 2: Management and Voting. In this article, there will be three things covered, whether the LLC will be member-managed or manager-managed, how voting in the LLC will work, and what you'll be voting on. Firstly, an LLC can be managed by its members or by appointed managers. If the LLC is manager-managed, this article also details the authority of the manager and how the manager can be voted out by other members of the LLC if so desired. Next, this article outlines company voting policies. This is how the company votes on issues that require a group decision. You'll need to decide if voting rights are calculated by the number of LLC units owned by members or per capita, i.e. one vote per member. You will also decide whether the votes need to be unanimous or majority. Finally, this will detail what actions are to be voted upon and what is to be decided by the manager. This can include amendments to the operating agreement, mergers or dissolution, new members, sale of assets, and so on. Article 3: Capital Contributions. The third article addresses which members have given money to start the LLC in the form of capital contributions. This section will also explain how additional money can be raised by the members. For example, additional capital might be raised by issuing additional LLC units to existing members in exchange for capital contributions or by issuing additional units to new members. Article 4: Distributions. The fourth article describes how the company's profits and losses are shared among members. This might include money, physical property, or other business assets. Profits and losses may be allocated among members proportional to their LLC unit percentage or by some other metric. It will also cover distributions, money allocated to members from time to time when deemed appropriate. Again, it will need to be decided if this is proportionate to each member's unit percentage or by another metric, i.e. if some members work in the LLC and others don't, those members who work in the LLC may receive an extra distribution. This section will also make it clear that distributions and allocations will still need to follow and account for tax requirements and fulfill outstanding debts so the company does not go bankrupt. Article 5: Membership Changes. The fifth article details the process for adding or removing members, if and when members can transfer their ownership of the company and what happens if a member dies, and so on. This process is related to the voting procedures outlined in Article 2, and will acknowledge any documentation that must be made with these changes. This section can also cover the transfer of LLC units, how members can voluntarily sell, transfer, or assign part or all of the membership interest. Lastly, you may want to cover how a member can voluntarily withdraw from the company and whether they should get a distribution payment if they do so. Article 6: Dissolution. This section of the operating agreement will explain the circumstances in which the company may or must be dissolved. This is sometimes called winding up the affairs of the company. If the company has assets, this section may also detail how they should be distributed when the company has been wound up. Why an operating agreement is a living document. Now you've seen the basic elements that make up an operating agreement. It is important to understand, however, that an operating agreement is not set in stone. It is meant to change and evolve as your business grows. This is why it is known as a living document. Dynamic changes allow the flexibility of an LLC to work for your business and not keep you locked into an unfortunate situation. Changes can be made to the document, but make sure that all members of the LLC sign off on the new changes according to the voting requirements outlined within the existing operating agreement. You can also hire an attorney to fine-tune the operating agreement if things become overly technical or complex. How to create an operating agreement with our free tools. You don't need to write your own operating agreement from scratch. We provide both templates and a free online tool to help you format a custom operating agreement to get started. Many LLC formation companies offer operating agreement templates and you can also hire an attorney. Of course, both of these options will cost you money and lawyers can be very expensive. To save time and money while knowing that you can always update your operating agreement in the future, you can use our free tool at HowToStartAnLLC.com. The tool will walk you through the process in an easy-to-understand manner, both for a single member and multiple member LLC. Once you enter your information, you'll get a custom formatted operating agreement PDF with all of your information, or you can also use our existing operating agreement templates that you can download and adjust to your preference. We provide lots of tools and resources to help you accelerate your small business, free of charge. We would love to see you succeed in your entrepreneurial dreams. Thank you for watching. Give us a Like and subscribe, and leave a comment below if there are any other small business topics you would like us to cover. Good luck starting your small business. (soft upbeat music)