Operating Agreement

Operating Agreement

As mentioned in the previous section, an LLC must decide if it will be managed by all the members or by a limited number of managers. If it is to be run by managers, there may be one or more, and he or she may or may not be a member.

It is important in either case to have a written agreement spelling out the rights and duties of the members and managers, if any. This is also a good document in which to include other rules governing the LLC. Even if an LLC has only one member, a membership agreement should be signed to formalize the LLC and make it clear that the member is not personally liable for the debts of the business.

LLCs that do not follow procedures can have their veil pierced (meaning the owners can be liable). Therefore, it is important to set up procedures to formalize the company and distinguish it from its owners. Of course, if you set up procedures and do not follow them, a court could use that as a reason to impose liability.

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