Have you recently formed your Limited Liability Company (LLC) or are you interested in forming an LLC for your business? If so, you will also need an Operating Agreement for your LLC. While South Carolina does not require an LLC to file a copy of one with the Articles of Organization, there are several reasons why your company needs an Operating Agreement. A South Carolina business formation and planning attorney can help you draft an Operating Agreement that meets your company’s needs and protects your interests now and in the future.
What is an LLC Operating Agreement?
A Limited Liability Company may have one member (owner) or multiple members. Even a single-member LLC can benefit from an Operating Agreement.
An LLC Operating Agreement is a legal document that governs the ownership and operation of the company. The information contained in one varies, but typically includes sections related to membership, capital contributions, organization, management, voting rights, distributions, membership changes, and dissolution. It can also be tailored to meet your company’s specific needs.
Five Reasons to Create an LLC Operating Agreement
1. Limits Personal Liability
One of the common reasons for creating an LLC is to limit the members’ personal liability for company debts and obligations. Without an Operating Agreement that clearly defines the separation of the business entity from the members, a court could determine that the business is not a separate entity and hold the members personally liable for company debts.
2. Resolve Disagreements
Disagreements related to business decisions and daily operations may arise between members. An Operating Agreement can contain rules for resolving disputes between members. It also provides structure and rules for the company that can quickly resolve a dispute without litigation or mediation if the dispute involves a specific issue governed by the LLC agreement, such as the exit of a member or a member’s authority to make certain decisions for the LLC.
3. Membership Changes
The Operating Agreement dictates how membership changes are handled. For example, what happens to a member’s interest if the member dies? Can a spouse claim an interest in the LLC in a divorce? The agreement may dictate that the other members have the right to purchase the interest instead of allowing the interest to transfer to another person outside of the company.
4. Default Rules Govern the LLC
If you do not create an Operating Agreement for your LLC, the default LLC rules in South Carolina apply. LLCs are created and governed by state law. Many of the default provisions for LLCs may be overwritten by creating one.
5. More Control
An Operating Agreement allows you to control the daily operations of the business, how the business grows, future memberships, members’ voting rights and responsibilities, and distributions from the LLC. Without a detailed agreement, you remain in control of your company even if you choose to add members in the future.
Contact a South Carolina Business Attorney to Discuss Limited Liability Companies
Our South Carolina business attorney can help you determine if an LLC is right for your company. We discuss the pros and cons of an LLC. If you want to form an LLC, we can handle all aspects of the business formation, including drafting an LLC Operating Agreement. Schedule a consult today.