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you want to know how to write an llc operating agreement now i'm going to walk you through how to do it step by step starting right about now [Music] hey if you're new to the channel i'm quran from life accounting the number one firm for small business financial education be sure to give this video a like to help other small businesses see it and subscribe to the channel so you don't miss out on future videos and if you have a quick question or just want to say thank you for the video be sure to leave a comment below now quick disclaimer this is not legal advice and you should get your operating agreement checked by an attorney of your choice okay let's start by answering the question what is the operating agreement and why is one important well an operating agreement is a legally binded document that outlines in detail the rights and responsibilities of the members of the llc and how the business will operate now some states don't require you to have an operating agreement but i suggest you always create one to minimize any misunderstandings and disputes operating agreements make it very very clear how the business will operate and can be referenced later on in times of uncertainty such as member withdrawal equity and distribution splits signing of contracts member deaths and more if you do not have an operating agreement the default llc rules of your state will apply which may differ from what you have in mind for your own business okay now that we understand what an operating agreement is and the importance of one let's walk through a template to help you write one for your own company this will be a good starting point for your own operating agreement as it includes almost all if not all clauses recommended in most agreements okay the first step is to go to law depot.com i'll leave a link for it in the description below so you don't got to go searching for it then you want to go to business at the top and then llc operating agreement all right so we're going to start creating the llc operating agreement note that it asks you where is this company registered and that's because it's going to want to create an llc operating agreement that is specific to your state so for me i'm going to leave it on georgia then i'm going to go to save and continue next is going to ask you will your company perform professional services so if your company performs a service such as cleaning right then you're going to want to click yes if you are just say e-commerce business then you would click no for me i'm going to click no all right and then it's going to ask you what is the primary purpose for this company now for my company quran's toys um you can make something general and something broad typically works okay so i'm going to say i so toys next is going to ask you for your company name so go ahead and put your company name there then where is the company principal office located okay so wherever your company is located if you have an office then you put the office address if you work from you know your home then you put your home address all right so it's asking for the street all right so you put your address in now save and continue okay next is going to actually will this company have more than one class a member so in the llc your members are the owners and when it asks you if you want to have more than one class of members more than one class of owners it's asking you if you want to have different say subsections of owners each having their own different rights and responsibilities and obligations and that is up to you if you'd like to do that for me and karan's toys i'm going to say no all right next is going to ask you who are the members aka the owners of the llc note that with the llc you could have different types of owners you could have actual people or individuals a corporation can own an llc and then a you could have a partnership trust or another llc can own the llc so for me i'm going to say individual and all right so i am one of the owners right so go ahead and put your name there or i'm going to go ahead and put my name and you can put your address if you like if you have more than one member for your llc so say you're a multi-member llc right not a single member then go ahead and add all of the members and my partner's name is john doe all right and karan's toys so you have your members and you want to go down and click save and continue now a capital contribution is anything that and member contributed to getting the business started now note this can be money this can be time this can be things such as equipment right whatever you contributed whatever member contributed to get the business started you place it here so me i contributed say five thousand dollars in cash right and you want to put a total value here the five thousand dollars and my partner john doe contributed equipment with a total value contribution of say five thousand dollars all right so once again cash capital contributions are anything that you contributed to getting the business up and running right once you have that in there click save and continue so next question could additional contributions be required in the future well what does that mean well we can go over here to the frequently asked questions and figure out right so choosing yes means that members can vote to increase the overall level of capital contributions in line with business needs and require additional investments from its members so if you say yes then you are basically saying that if the business needs more money right if you vote to increase the cash capital contributions then basically they're required to right your members are required to fulfill that obligation if you choose no then let's see what it means choosing no means any additional money invested in the company by a member aka owner is treated as a debt owed by the company to the owner this means that members original share in profit and loss and in distribution will be maintained so this does not affect equity but is basically seen as almost like a loan to the business from one of the members okay so i'm gonna click no now we're gonna get into if you're able to add new members to to their llc all right can a new member be admitted later i'm going to say no all right this is up to you but i'm going to go ahead and say no all right can a member voluntarily withdraw from the company that is up to you um i personally believe that if you're in business with somebody and you choose to do business with someone that you can't just voluntarily leave we're gonna have to work it out together or figure out you know how to go about that situation so i'm gonna click no okay but if you have any questions about why you should restrict members then you can you can you know look at this frequently asked questions here and they have a good point the success of your llc depends on the participation of all members right that's why you might not want to have a member voluntarily withdraw from the company i agree let's talk about member meetings so llcs are required to hold regular meetings right to discuss a business and you can put in your operating agreement how often you will hold regular meetings now i i'm going to choose only as required and i don't think that you should place a requirement in your operating agreement on regular meetings but um it might be good if you need to you know hold yourself accountable and hold your members accountable right um me and quran's toys we've been doing business together me and john for years and i think we have a good understanding of when we need to hold meetings so i'm going to use only as required but if you need to hold yourself or your members accountable then go ahead and put it in the operating agreement so that you can reference it later next how will member votes be determined okay by ownership share or what everybody have equal vote for each member let's talk about this so you can you can decide how voting right so when it when you need to decide on something how votes are determined it can be by ownership share or does every single person in the llc have an equal vote i'm going to choose equal vote for each member if you have a llc where you might you know different people have varying ranges of ownership in the company then you might want to click buy ownership share right because someone that has one percent ownership might not or should not have the same say so as someone with 70 ownership right but me and john we have equal share in the business so i want to do equal vote for each member next let's go over to management details so the next question goes into management and it asks you who will manage the company two options the members or one or more appointed managers so within an llc you can it can be member managed meaning the owners of the business run and operate the business on a daily basis or it can be manager member meaning that one or more appointed managers not the owners manage the business on a day-to-day basis okay so with the first option the owners of the business are actively working in the business and in option number two the owners of the business are passively in the business they do not work on it on a day-to-day basis so i'm going to choose the members or aka the owners will manage the company as me and john plan to run the company and grow the company together and work in it day-to-day right now let's go into accounting so i asked the question how should this company be classified for tax purposes will you be taxed as a partnership or a corporation okay now i won't go into you know what this means you know we have videos on our on our youtube channel that can help you decide on which is best for you but i'm going to go ahead and say that we will be taxed as a corporation okay now i asked the question do you wish to include your fiscal year end and i'm going to say yes for your business your corporation when does your fiscal year end for the company and for my company it ends december 31st okay that's the end of our fiscal year next let's go into profit allocation so how will profits be allocated and there are three options here each member will receive an equal share okay each member will receive a fixed percentage or each member is allocated profits based on their capital contributions all right so you have a decision here to make with the first one each member receives the equal share regardless of you know their equity percentage next each member will receive the fixed percentage so that can match their equity percentage and next in proportion to capital contributions aka what you actually contributed to the business i'm going to go with in proportion to capital contributions okay um just meaning that you know what we brought to the business is our share of the profits and what should be allocated in addition how i plan to operate my company with john is that every hour that you put into the business grows your contribution pool okay so that's how i want to do it so i'm going to click the third one next let's go into annual reporting in addition to federal income tax reports what other reports do you want to include in your annual report to members okay you have income sheet balance sheet cash flow statements profit and loss summary these are you know accounting documents that should be happening on a monthly basis honestly for every single business out there so i'm going to include all of these as a requirement because i believe that it's important okay all right now we're going into dissolving the company right so will the company be dissolved if one member leave all right so if a member leaves whether they're voted out or so on and so forth will the company dissolve that is something that you have to you know think about for yourself i'm gonna go ahead and say no if john leaves for whatever reason then the company will not dissolve but how will access be distributed when a member leaves or when winding up the company three options similar to profit and loss each member will receive an equal share each member will receive a fixed percentage and proportion of capital contributions i'm going to go with in proportion to capital contributions all right now next let's go into administration who can sign contracts on behalf of the company any member of the organization or specific groups or individuals i'm going to go ahead and say any member for me and john but i want to make sure that you understand that if you click this any member regardless of their equity percentage in the business will be able to sign a contract um if you don't want that to happen say you you may be the only one that can sign on contracts by half of the company then you may want to choose this option all right let's go to save and continue all right our members allowed to compete with the company all right so this is we talking about non-compete clauses i'm going to go ahead and say no right you can't compete with the company but how long are members restricted from competing with the company and i'm going to say for six months after leaving okay you can also add you know other options after leaving the company right but i'm gonna go ahead and say six months after leaving all right now let's go into actions that require unanimous consent so unanimous consent amongst all members so select the issues that require that selling loaning mortgaging or otherwise trading accompanying property releasing any claim except for payment in full and current liabilities over a fixed dollar amount or incurring expenses over a fixed dollar amount so i'm going to go ahead and click all of these because i believe at least in me and john's partnership that we should un unanimously agree on all things that happen with the business so in current liabilities over a fixed dollar amount i'm going to say over zero dollars and the current expenses over a phase dollar amount i'm gonna say zero dollars right so anything over nothing we have to unanimously unanimously agree on as you can see this is a very thorough and very detailed and will save you from trouble later on all right so additional clauses do you want to include any additional terms or information um if you do you say yes and you can include them here i'm going to go ahead and say no but the good news about all of this is that llc operating agreements once again are editable afterwards if all parties agree and sign on it so this can be a good starting point once again but it is not a one and done right it can be edited so i'm going to go ahead and say no hit save and continue all right what is the sign and date for this agreement i'm going to specify a date and i'm going to go ahead and say today and will you have witnesses sign this agreement i'm going to say yes how cool is that y'all so it says to download and print your llc operating agreement you must select the free or premium license go ahead and select the license all right you can go ahead and select free if you want and just get this llc agreement if you want to look at some of the other plans you can but law depot has a ton of other documents that may help you so consider these options but me i'm going to go ahead and do the free trial all right and once you do the free trial you can go ahead and enter your information and then you can download that agreement and have your llc operating agreement so that's law depot once again i'm going to go ahead and put a link in the description for you so you can get here easily and start your own llc operating agreement well there you have it your very own llc operating agreement if you found this video helpful do me a favor and smash that like button turn it blue and subscribe to the channel for more videos like this one i'm quran from life accounting until next time you