Frequently Asked Questions

What happens if an operating agreement is not specified in an LLC?

An LLC operating agreement is a crucial document that outlines the operational procedures and guidelines of a Limited Liability Company. It is particularly important in multi-member LLCs where it can help prevent disputes among members. However, it's not legally required to have one. If an operating agreement is not specified in an LLC, the company will have to rely on the default rules of the state in case of any disagreements or disputes. These default rules may not always align with the best interests of the company or its members. The operating agreement typically includes details such as the LLC’s name, address, management type, ownership percentage, member’s voting rights, business purpose, and how disputes among members will be resolved, among other things. Without an operating agreement, these aspects would be governed by state law, which may not be as flexible or beneficial to the LLC's unique needs. In the absence of an operating agreement, the LLC may also face challenges in terms of management structure, financial distribution, and organizational structure. For instance, without a specified management structure, it may be unclear whether the LLC is member-managed or manager-managed. Similarly, without clear financial clauses, the distribution of profits and losses among members may become a contentious issue.