What Should Be Included in an LLC Operating Agreement?

Your LLC company must meet state LLC operating agreement requirements regarding ownership shares, management rules, and profit splits to be valid. Instead of leaving those choices to state defaults, though, it’s best to have your own agreement drawn up with the help of an experienced Woodbury, New York lawyer who understands the regulations and how to structure your agreement so it does what you want while following all the rules.

LLC Operating Agreement Requirements

New York laws require that every limited liability company:

1. Adopt a written operating agreement
2. Put the agreement in place before, at the time of, or within ninety days after the articles of organization are filed with the Department of State
3. Describe the “conduct of the LLC’s affairs” 
4. Explain the rights, powers, preferences, limitations or responsibilities of members, managers, employees or agents
5. If it includes provisions limiting the personal liability of managers, have no provisions that limit any knowingly illegal action or anything done in bad faith or attempt to limit liability from before the LLC was formed 

Important Elements of an LLC Agreement

Your operating agreement is a legally binding document, so the more clarity you have here, the better. If you don’t put it in the agreement, and there are issues or arguments later that end up in court, you’ll be at the mercy of whatever decisions the courts may make under New York law.

Member Ownership

Include each member’s ownership percentage and capital contribution, and be sure to spell out the cash, property, or services each person put in and the percentage of interest their contribution created. Decide in advance how additional capital calls will work and what happens if a member fails to meet one.  

Management structure

You can keep the company member-managed, so every owner takes part, or make it manager-managed, so one or more designated managers run the operations. Whatever you choose, be sure to list the powers and duties of whoever holds authority, including who can sign contracts, open bank accounts, or hire/fire employees. 

Set Voting Rules

Decide whether votes should track with ownership percentages or whether each member should receive one vote, and then be clear about which decisions need a simple majority and which need a supermajority or unanimous consent. Some of the decisions you might need to spell out specific percentages for would include:

• Admitting a new member
• Borrowing money
• Selling major assets
• Closing out the LLC 

Be sure to also spell out the exact notice periods that will be required and how the meetings have to be conducted (in person, by phone, or with written consent) and whether proxy voting is ever allowed. 

Profit and Loss Distribution

New York defaults to giving members equal shares unless the operating agreement says otherwise. If you want something different, common arrangements include:

• Tying allocations to ownership percentages
• Creating preferred returns for certain members
• Setting special rules for tax items

Talk to a Woodbury, New York Attorney

Call us today at the Stone Studin Young & Nigro Law Group to request a consultation on forming your LLC. As the premier Long Island business law firm, we’re ready to help, whether you’re ramping up, starting up, or facing trouble.

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