Initials Amendment to LLC Operating Agreement Made Easy

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- Hi guys, Clint Coons here with Anderson Business Advisors, and in this video, we are gonna talk about some of the stupid mistakes (graphics whooshing) people make when it comes to creating their LLC operating agreements. (graphics whooshing) All right. Let's get started. (upbeat music) Okay, so I'm gonna talk about some mistakes that I see, oftentimes, when I review existing operating agreements that people have set up with either inexperienced attorneys that are not familiar with creating operating agreements for real estate investors. Or worse yet, you went on the internet, right? You went to Legal, I mean Zoom.com and said, "Give me an operating agreement." And you think you're protected. This happens all the time. People have these operating agreements that they're owning real estate under. They're operating their business under, and they don't know what's in there, or more importantly, they don't know what's missing. And as a result of it, this will come up when you're involved in a lawsuit, and it could come back to bite you. Well, I want to give you eight issues that I see many times in operating agreements that you should look to avoid in putting together your LLC operating agreement. Okay, so what is the first one? The first issue I have is going to be member managed. All right? (marker squeaking) We don't want to do member managed. If you're not familiar with this, when you set up an LLC, you have different styles of running that company. It can be either manager managed or member managed. Now the reason I don't want to do member managed is because in a member-managed context, all of the members can exercise control. So if you want to do something in the future, like gift away part of it to your children, and then you want to sell the property. Guess whose permission you have to get? Your kids'. You wanna refi the property. You gotta get your kids' permission to do it. Keep that out of there. So the other problem with member managed is when you file it with the secretary of state, many time the secretary of states would like to know who are the members. If you set up a member-managed LLC, then they want you to list the members. So now you disclose the fact to the world at large that you own this LLC. Not a lot of privacy there. The other side of the coin is what is referred to as a manager-managed LLC. And even though you're gonna be the member and the manager, still, I like to set them up as manager managed, because it tells everyone, hey, this is a person that has control. They run the company. If you give ownership away later on to your children or someone else, you're still in control, and you never lose that control. So I would avoid member manager and opt to go, always, with manager-managed limited liability companies, unless you're using...