Based in Sydney, Australia, Foundry is a blog by Rebecca Thao. Her posts explore modern architecture through photos and quotes by influential architects, engineers, and artists.

What Are Some Best Practices for a Lean Startup's LLC Operating Agreement?

Think of your LLC operating agreement as the prenup for your business.

It's a set of documents that provide you with the framework for various business and functional issues that may arise. By talking with your partner(s) and ideally creating one with a lawyer, you'll likely avoid costly and time consuming disputes as your business matures. 

Here are some (not all) points you should spell out in your operating agreement.

Define the Roles

If there's multiple parties to the LLC you want to make sure that the operating agreement defines the roles and responsibilities of all the owners. It's a good idea to include key terms that relate to the allocation of profits, contributions, voting rights and more.

Pay Attention to State Rules

Many states have a set of laws that create some basic rules surrounding LLC's that are formed there. These rules will ultimately govern your business unless you decide to create a clause within the agreement that says otherwise. 

For example, some states may require you to split profits and losses equally despite the dollar amount of each partners investment. If that doesn't sit right with you, have the lawyer explain you the state rule and figure out how you want to proceed regarding that.

Ownership Percentage

For most LLC's, the owners get together and contribute a certain amount of cash or something else of value to get the business of the ground. In exchange for this, each partner will get a certain percentage of the LLC proportionate to their capital or it could be divided in any other way you choose. Again, it's good write out what you prefer as clearly as possible.

Other Clauses to include

 

  • How the business will be managed
  • Meeting rules
  • Buying / selling interests
  • New ownerships

 

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