Subtitle: 
A carefully created Operating Agreement can significantly help the future success of a small business

An Operating Agreement is an agreement as to the affairs of a limited liability company or LLC.  The Operating Agreement contains provisions for the affairs of the limited liability company and the conduct of its business.  Typical subjects contained in Operating Agreements include:

Important Tip Taking some time to discuss the future operation of a small business LLC with the members in an Operating Agreement can provide helpful guidance in the compatibility of the members in the future.
  • The powers and purposes of the small business LLC
  • The term of the small business LLC
  • The treatment of capital contributions
  • The maintenance of capital accounts for members
  • How funds are allocated and distributed
  • How the small business LLC is managed
  • Voting rights for the members of the LLC
  • Rights of a manager, if there is a manager
  • Indemnification of members and others related to the small business LLC
  • The keeping of books and records of the LLC
  • How transfers or sales of membership interests are handled
  • The admission of new members
  • The withdrawal of members
  • Dissolution or liquidation of the small business LLC
  • How the Operating Agreement is amended
  • Other general provisions

In Colorado, the law is very supportive of Operating Agreements and they can contain almost any provision relating to the LLC.  There are a few things that can’t be included in an Operating Agreement, including:

  • Unreasonably restrict the rights of members and managers to the records of the small business LLC
  • Eliminate the requirement of good faith and fair dealing by members and managers
  • Restrict rights or impose duties on persons other than members without their consent

In some cases, the Operating Agreement may not even be in writing, although we highly recommend writing an Operating Agreement for a small business LLC.

Unlike Bylaws for corporations which tend to be more standard, an Operating Agreement should be customized for different types of small business LLC’s and should reflect the desired relationship of the members going forward.  The best way to do this is to walk through the typical provisions, usually with a good checklist, to discuss common events that might occur in the life of a small business and how they should be treated among the members.  While not every event can be considered, there are many common events that can be discussed and decided up front that will help avoid conflicts and confusion at a later time.

A single member LLC will obviously have less need for a customized Operating Agreement.

Additional Information
Important Tip: 
Taking some time to discuss the future operation of a small business LLC with the members in an Operating Agreement can provide helpful guidance in the compatibility of the members in the future.
Marketing copy: 
an operating agreement