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Reasons you need an LLC operating agreement

On Behalf of | Jan 13, 2022 | Business & Commercial Law

Oregon does not require businesses forming as limited liability companies to file an operating agreement. However, there are reasons to consider drafting one anyway.

What are the benefits of drafting an LLC operating agreement?

What is an LLC operating agreement?

An LLC operating agreement is a legal document that includes several key sections:

  • Basic company information
  • Business purpose
  • Statement of intent
  • Duration of the business
  • Tax treatment
  • Member and manager information
  • Additional provisions

For a multi-member LLC, the operating agreement serves as a contract between the members of the LLC. You may want to consider drafting an operating agreement at the same time as your other formation documents to avoid the possibility of your LLC being subject to the default LLC laws.

Reasons to draft an LLC operating agreement

For multi-member LLCs the operating agreement can help avoid disputes between members, but even single-member LLCs can benefit from drafting one. It helps establish the LLC as a separate entity from the owner. The agreement makes it possible to customize the division of business profits between multiple owners. An operating agreement lets you establish your own governing rules. Without an operating agreement, your state’s default rules apply. Your operating agreement specifies what happens to the business when an owner dies or retires.

Establishing an operating agreement provides you with a greater level of control over how your business operates and how members resolve disputes. For these reasons, it can be beneficial for the owners of LLCs to draft an operating agreement even when forming a business in a state that does not require it.