Forming an LLC (limited liability company) can be an attractive option if you prefer a business structure that offers greater personal protection but less formality.
The formation of an LLC does require some paperwork; most notably in Missouri, an operating agreement. An operating agreement is vital to the LLC because of the tailored structure it lends to the company’s internal operations, in much the same way as bylaws are created for corporations. Once signed by all members, the operating agreement is legally binding.
While many states do not require an operating agreement, Missouri does require it. Business owners should think seriously about the consequences of operating without such an agreement, for these reasons:
1. It is the law.
2. The Operating Agreement helps protect your personal liability, defining profit splits, major decision chains-of-command, exit policies, and new member additions.
3. The Operating Agreement sets out crucial operation rules in writing, averting misunderstandings among owners over finances and management.
4. Courts tend to show greater respect to companies organized under an LLC, as it demonstrates commitment and conscientiousness.
5. The Operating Agreement can be helpful in averting misunderstanding between owners over things like management and financing.
6. Business owners can create custom operating rules with an Operating Agreement, rather than being governed by default according to generalized state rules.
Anatomy of an Operation Agreement
Operating agreements are contract documents outlining specific internal operations and functions, including:
• The percentage of each members’ ownership
• Member’s voting rights and responsibilities
• Members’ and managers’ fiduciary responsibilities
• Distribution of profits and loses
• Meeting arrangements
• Procedures for transferring interest in the event of a member’s death, or a member’s choice (Buyout and buy-sell rules)
Safeguarding Your Operating Agreement
In Missouri, operating agreements are not required to be filed with the state. But banks, lenders, attorneys, accountants and business partners may need access to the Operating Agreement. So where should yours be kept for safety and easy access? Generally speaking, wherever you store other vital business documents.
In Missouri, Quinn Estate & Elder Law can help you draft an operating agreement specially tailored to your company’s needs.