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The purpose of LLC operating agreements

On Behalf of | Feb 3, 2023 | Business & Commercial Law

Many entrepreneurs in Georgia and around the country are choosing to establish limited liability companies instead of corporations when they launch a new enterprise. LLCs are flexible and easy to set up, and they offer the same liability protection as C and S corporations. The rules dealing with the formation of LLCs are fairly straightforward, and little paperwork is involved. However, entrepreneurs who take this path would be wise to draft an LLC operating agreement even if state law does not require it.

LLC operating agreements

An LLC operating agreement is a document that details how a company will be run and how its internal operations will be managed. Operating agreements detail each member’s ownership position and specifies their rights and responsibilities. These documents usually contain provisions dealing with the way profits will be distributed, and they may place restrictions on how interests are sold if a member dies or decides to quit the company. Operating agreements are recommended because having written rules provides clarity and avoids misunderstandings.

The LLC rules in Georgia

Every state has business laws that provide guidance and set rules for LLCs. Some states require members to draft operating agreements, but there is no such rule in Georgia. If the members of a Georgia LLC choose not to draft an operating agreement, any legal disputes they become embroiled in will be decided based on default rules that may not reflect their wishes.

Staying on track

Entrepreneurs are usually enthusiastic and optimistic individuals, but that kind of personality has a few drawbacks. LLCs protect personal assets and are quick and simple to set up, but they can be difficult to run if the members focus too much on growth and plans for the future while ignoring mundane day-to-day matters. LLC operating agreements prevent this from happening because they let each member know what their rights and responsibilities are. When entrepreneurs know where they stand, their companies are more likely to be successful.