An operating agreement is a legal document used by South Carolina limited liability companies to structure a business’s finances, tax structure, membership rights, member and manager duties, and other business functions. The operating agreement is meant to govern a business’s internal operations and needs to target the particular business and the members’ specific needs. Once the members of an LLC sign an operating agreement, the legal agreement becomes a legally binding document enforceable against each of the members and the LLC.
An operating agreement is critical for the limited liability status of an LLC. It allows members of the LLC to shield themselves from personal liability for certain types of business actions and conduct. Operating agreements also clarify and solidify member expectations and terms that may have been discussed verbally. In case of member disputes, operating agreements are referred to in order to resolve the issue.
Operating agreements outline the functionality and structure of the internal operations of an LLC. Once members of the LLC sign the operating agreement, it becomes legally enforceable against each member.
Elements of Operating Agreements Include:
Percentages of members’ ownership;
LLC rights, as a party to the agreement, with respect to third parties;
Member contribution obligations and priority returns, if any;
Members’ voting rights and responsibilities;
Members’ and managers’ powers and duties;
How profits and losses will be distributed;
How each members taxes shall be paid in connection with LLC income;