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6 Reasons Why a Limited Liability Company Needs an LLC Operating Agreement

Business owners often (rightfully) decide to form a limited liability company (LLC) through which to conduct their business. LLCs offer many advantages for business owners. However, while these individuals will file the necessary incorporating documents with the state to form their LLC, many of them forget to prepare a critical internal document: the LLC operating agreement. Many states do not require LLCs to prepare or file an operating agreement. (New Hampshire, Massachusetts, and Florida do not require operating agreements, but, for example, California and New York do.) Even if your state does not expressly require an LLC operating agreement, however, business owners should still consider preparing and executing one for several reasons. What is an LLC Operating Agreement? An LLC operating agreement is a contract between the members of an LLC. It sets forth specific terms and guidelines for the operation of the business, the distribution of profits and losses, the addition and withdrawal of members, how the business will be taxed, and other internal issues. 6 Reasons for an LLC Operating Agreement 1) Business Owners Can Avoid Disputes The greatest advantage of an LLC operating agreement is that it allows business owners to set clear expectations and guidelines for their business, and those expectations will help them avoid disputes. Partnership disputes can be nasty, exhausting, and cost a business and its owners a lot of time and money. The benefits that follow, below, all help business owners outline, in as much detail as they want, how they will conduct themselves and their business. The best operating agreements leave no stone unturned and contain few, if any, areas of ambiguity....