Christopher S. Mulvaney,

Attorney and Counselor-at-Law

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THIS WEBSITE INCLUDES GENERAL INFORMATION & THE OPINIONS OF CHRISTOPHER S. MULVANEY. IT IS INTENDED TO STIMULATE A BASIS FOR QUESTIONS RELATED TO YOUR PARTICULAR FACTUAL CIRCUMSTANCES — BEFORE YOU ACT.  THIS WEBSITE DOES NOT CONSTITUTE LEGAL ADVICE. IF YOU WANT LEGAL ADVICE, PLEASE MAKE A ZOOM APPOINTMENT TO SPEAK WITH ME.

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Gonzaga University School of Law – Spokane, Washington – Class of 2002 – Cum Laude The Latin phrase “Deo patriae, scientiis, artibus” translates to “For God and country through sciences and arts”.  The initials A.M.D.G. on the seal of Gonzaga Law School stand for Ad Majorem Dei Gloriam, which is Latin for “For the Greater Glory of God” the Motto of the Society of Jesus (Jesuits): a Catholic religious order founded by St. Ignatius of Loyola.

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WHY IS IT IMPORTANT TO HAVE AN OPERATING AGREEMENT FOR AN LLC?

An LLC operating agreement is a crucial legal document that outlines the internal rules and procedures for managing and operating a limited liability company (LLC). While some states may not legally require it, it’s highly recommended and offers numerous benefits, especially for multi-member LLCs. 

Here’s why having a well-drafted operating agreement is important:

1. Protects Limited Liability Status:

• An operating agreement helps to reinforce the separate legal identity of the LLC from its members.
• It demonstrates that the business is being run formally, which is crucial for maintaining the limited liability protection that shields personal assets from business debts and lawsuits.
• Without an operating agreement, the LLC may be seen as a sole proprietorship or partnership, potentially exposing members to personal liability. 

 

 

 

 

 

 

2. Customizes Business Structure and Operations:

• The operating agreement allows you to tailor the internal operations of your LLC to fit your specific needs and preferences.
• You can define how profits and losses will be allocated, how decisions will be made, and how the business will be managed, rather than relying on the state’s default rules.
• This flexibility is particularly valuable in multi-member LLCs where members might have different contributions or desired profit splits. 

3. Avoids State Default Rules:

• If you don’t have an operating agreement, your LLC will be subject to the default rules outlined in your state’s LLC statutes.
• These default rules may not align with your business goals or reflect your intentions, and they could be detrimental to the business and its members.
• For example, some states have default rules that require equal profit distribution among members, regardless of their contributions, which could be unfair. 

4. Provides Clarity and Prevents Disputes:

• A written operating agreement serves as a clear roadmap for the business, outlining the roles, responsibilities, and expectations of each member.
• This clarity helps to prevent misunderstandings and disputes among members.
• If disagreements do arise, the operating agreement can provide a framework for resolving them, potentially avoiding costly litigation. 

5. Ensures Business Continuity and Future Planning:

• The operating agreement can address important future scenarios, such as the admission or withdrawal of members, the transfer of ownership interests, or the dissolution of the LLC.
• It can include provisions for buyouts, buy-sell agreements, or succession planning, ensuring a smooth transition in case of changes in ownership. 

6. Facilitates Relationships with External Parties:

• Banks, investors, and potential business partners may require a copy of your operating agreement to understand your LLC’s structure and operations.
• Having a well-drafted operating agreement demonstrates professionalism and compliance, which can increase the credibility of your LLC and facilitate business transactions. 

7. Important for Single-Member LLCs:

• Even if you are the only member of your LLC, it’s still highly recommended to have an operating agreement.
• It reinforces the LLC’s separate legal identity and can help protect your personal assets from business liabilities. 

In essence, an LLC operating agreement is a vital document that empowers you to control your business, protect your assets, and minimize potential problems in the future. It’s a strategic investment in the success and longevity of your LLC.

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Washington State residents can meet with me in Zoom/DocuSign from anywhere in the world, and I can notarize their electronic signatures because I am a remote online notary.  Just email me an image of your photo ID.