Does Your LLC Need an Operating Agreement?


When forming a limited liability company, people often get swept up in the excitement of the new venture and direct all of their attention to getting the LLC’s business off the ground. The rush to focus on the business aspect can often lead to bypassing some of the important details of the company itself, including its structure and governing rules.

Without an agreement among the members of an LLC as to how its affairs will be managed, routine events can often lead to acrimonious and problematic situations down the road. What do you do if one of the members of the LLC wants to sell his or her membership interest or retire? How do you go about admitting a new member into the LLC? What will you do if there is a disagreement among the members as to how or when the company’s profits are to be distributed? How should a member’s work for the LLC be valued, and should it be credited to their capital account? In the absence of an operating agreement, uncertainty regarding such issues can lead to turmoil among its members and negatively affect the business that you have been striving to make successful.

An LLC’s operating agreement is the core document that is referenced when issues concerning the company need to be addressed and resolved. Once created, it governs the LLC’s affairs and provides the members with a clear set of agreed-upon rules. Members of an LLC have a great amount of flexibility in determining what they want in their operating agreement and how the company will operate. Pursuant to Colorado law, the provisions of an operating agreement will trump most “default” provisions of Colorado law governing limited liability companies to the contrary. By consulting with an attorney, your operating agreement can be tailored to meet the specific needs of your business and its members.

If you are thinking of starting a business, or have already formed an LLC, and would like to discuss your situation and the benefits of an operating agreement to you, please feel free to call and schedule an appointment with one of our experienced attorneys.

Disclaimer –The foregoing are observations and opinions of the author. It is not legal advice and should not be relied upon as such. The law is complicated and there are exceptions. You should always discuss your particular facts and circumstances with a qualified attorney.