Important Issues to Consider In Developing LLC Operating Agreements
Developing an LLC operating agreement for any business requires thoughtful consideration to properly address the numerous issues in connection with the LLC organization, internal affairs of the business, and the relationships among the members. The following is a brief discussion of the important issues members should address in the LLC operating agreement to ensure that the members receive the benefits afforded by the LLC entity structure.
Since the operating agreement is a business agreement it must satisfy the standard contractual elements in any agreement – offer, acceptance, consideration, and clear and precise terms.
The operating agreement should address certain South Carolina business organization law issues, such as, member capital contributions, member allocations, member economic rights, member non-economic rights (such as voting), member or manager management structure, control issues, member dissociations, membership interest transfer issues, buy-sell provisions, etc.
As noted above, the LLC may be taxable as a sole proprietorship (single-member LLC), partnership, S-Corp or C-Corp. Our Charleston corporate attorneys often review LLC operating agreement that set forth a partnership tax structure when the LLC is actually taxable as a sole proprietorship or S-Corp. Proper attention should be given to ensure the proper tax structure is provisioned in the LLC operating agreement.
As noted above, close attention should be given in determining which default provisions in the LLC Act to override or modify.
As noted above, the default rules of the LLC Act are not entirely comprehensive to address all LLC matters. If the LLC Act was perfect, there may be no need for an operating agreement. Since the LLC Act does not address specific issues and situations relevant to a business, close attention should be given to ensure those statutory gaps are covered in the operating agreement.
As noted above, there are certain mandatory rules in the LLC Act in which members should be aware. These mandatory rules should be addressed when developing and negotiating the LLC operating agreement.
Generally speaking, in the life of most ever business, the members will enter into a commercial lease agreement, take out a loan on behalf of the LLC, engage in a lawsuit, contemplate a business sale or asset acquisition, etc. In each of the situations, the third party will request to the review the LLC company agreements. The members must contemplate and address this third party issue when developing and negotiating the LLC operating agreement.
Do Single-Member LLC Need An Operating Agreement
The short answer is, yes. The LLC operating agreement will provide the sole owner with many of the same benefits as compared to a multi-member LLC. As noted above, many of the default rules of the LLC Act may be unsuitable for the sole owner of the LLC. Moreover, the default rules may not address critical legal issues specific to the operation of the business. Finally, the operating agreement can be used to address numerous issues involving third parties related or unrelated to the LLC, such as control, management and contract authority issues.
Should I Hire A Business Lawyer to Draft An LLC Operating Agreement
The short answer is, yes. Even the formation of a simple, straightforward single-member or multi-member LLC will undoubtedly involve important legal issues that should be discussed with a business lawyer. Moreover, the formation of the LLC will also involve important tax issues that should be discussed with a business accountant competent in areas of partnership and corporate taxation. Therefore, if the members forming the LLC have allocated in or around $700 – $1,500 to engage an attorney experienced in LLC organizations, it will be well worth the money. Note, legal fees may be somewhat higher if there is detailed legal and tax planning or the LLC operating agreement is significantly negotiated among the members.
Contact our Charleston LLC Lawyers
If you are seeking a Charleston LLC lawyer to develop, draft and negotiate an LLC operating agreement for your business, please contact our law firm by giving us a call, or sending one of our corporate lawyers an email. Our lawyers will respond to all inquires within one business day.