Operating Agreement for LLC: Its Purpose
by: Amy McDaniel on Tue, 21 Apr 2009 at: 12:01 PM Go to: Previous Article Next Article
An Operating Agreement for LLC provides an LLC business is not only needed as a guide for running the business but also serves three important protection purposes.
Fortified Safeguards Against Individual Responsibility
Most people know that a LLC business shields an owner's individual property from the promises made and the money owed by the owner's company.
There are laws across the country that keep the liability of a limited liability company separate from the liability of an individual regardless of his/her involvement with the business.
Despite the benefits allowed, many people do not realize that there are exceptions to the limited liability company laws that can call into question the separation between the company and its owner. This is called "piercing the LLC veil." It occurs if a complainant requests that a court overlook the limited liability company status of an establishment and seeks damages straight from the proprietor.
A technique used successfully to pierce the LLC veil is to get a judge to rule that the owners were involved in the business as individual agents, and did not act as if the company was its own legal entity. The judge may agree if the owners did not follow the stipulated rules regarding LLCs, and can be shown to have therefore ignored the LLC formalities.
These formalities are most often written up in what is known as an operating agreement. Having an operating agreement is therefore a good practice to protect against these kinds of lawsuits. Ensuring that your limited liability company business follows this operating agreement can avoid future complications.
An operating agreement gives the LLC its own distinct identity, and its own set of procedures and policies. As long as this agreement is followed by the company, it will be difficult impossible to demonstrate that the LLC is not being treated as a separate entity.
Guaranteeing the Company Runs Effortlessly
An LLC only exists because the law says it does. Once an LLC is formed, it is a shell legal entity. It still needs to adopt a set of rules for how it will be managed.
This is where the operating agreement comes in. The contract lets everyone involved know what conduct is acceptable, what is not acceptable, and what requires approval for smooth operation of the business.
Not having this set of rules can lead to a sense of insecurity that may cause trouble. It can lead to an interruption of regular operations.
Plus, third parties may avoid doing business with the LLC if it too is uncertain about whether the LLC is authorized to do business with them. The agreement resolves all these potential problems.
Even more importantly, an operating agreement will help maintain harmony between owners, who will know that the procedures for running the business have been set down on paper.
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Click Here to Learn about the Operating Agreement LLC and to Get Information about professional LLC forms endorsed by the leading provider of LLC information and publications on the Internet: http://www.TheLLCExpert.com/opagthome.htm
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