Thursday, January 10, 2008

Limited Liability Companies: What Does an Operating Agreement Do For a LLC?

Let us look at a few things the operating agreement brings to running the LLC. I already discussed several situations where not having an operating agreement may cause problems for the LLC's members in Getting Out of An Indiana Limited Liability Company. Now about some good things the operating agreement brings to the LLC.

The written operating agreement provides through Indiana Code 23-18-4-4 the essence of a limited liability company:

A written operating agreement may do the following:
(1) Eliminate or limit the personal liability of a member or manager for monetary damages for breach of a duty provided for in section 2(a) of this chapter.
(2) Provide for indemnification of a member or manager for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which a person is a party because the person is or was a member or manager.
A written agreement extends the statutory limitations on liability found at IC 23-18-4-2(a).

IC 23-18-4-5 Operating agreements; objectives describes the general outline for an operating agreement.
(1) The manner in which the business and affairs of the limited liability company shall be managed, controlled, and operated, which may include the granting of exclusive authority to manage, control, and operate the limited liability company to managers who are not members.

(2) The manner in which the members will share in distributions of the assets and the profits or losses of the limited liability company.

(3) The rights of members to assign all or a portion of their interests in the limited liability company.

(4) Classes or groups of at least one (1) member having certain relative rights, powers, and duties, including voting rights, and may provide for the future creation, in the manner provided in the operating agreement, of additional classes or groups of members having certain relative rights, powers, or duties, including voting rights, expressed either in the operating agreement or at the time the classes or groups are created, including rights, powers, or duties senior to those of at least one (1) existing class or group of members.

(5) Classes or groups of at least one (1) manager having certain relative rights, powers, and duties, including voting rights, and may provide for the future creation, in the manner provided in the operating agreement, of additional classes or groups of managers having certain relative rights, powers, or duties, including voting rights, expressed either in the operating agreement or at the time the classes or groups are created, including rights, powers, or duties senior to those of at least one (1) existing class or group of managers.

(6) The circumstances in which an assignee of a member's interest may be admitted as a member of the limited liability company.

(7) The procedure for the following:
(A) The right to have a member's interest in the limited liability company evidenced by a certificate issued by the limited liability company.(B) Assignment, pledge, or transfer of an interest represented by the certificate.
(C) Any other provisions dealing with the certificate.
(8) The method by which the operating agreement may be amended.
Notice the statute does not specify how the LLC shall implement these powers in the operating agreement's language. If and then how the LLC's members decide to implement these powers complicate creating an operating agreement. That other statutes offer options for the LLC's members to include or not make an LLC operating agreement a tailor made product.

I assume anyone reading this is probably interested in starting a business. I seriously suggest that you take the time to read my archives on start ups and limited liability companies. Links to these archives are directly below next to Labels.