An LLC operating agreement enables a small business owner to establish each of a company's co-owners' percentage of ownership within a firm as well as his or her share of profits and that person's rights and responsibilities. It also allows them to outline what would happen if a partner opts to leave the company.
While an LLC operating agreement is not required in every state, it is highly recommended by experts, even for those companies that are run by just one person. In such cases, it would allow the single business owner to ensure that he or she is able to run and govern a business by his or her own rules, as opposed by the default rules of the state in which a company is incorporated.
"The main reason to make an operating agreement is as simple as it is important: It helps to ensure that courts will respect your limited personal liability," the website Bplans explains.
"This is particularly key in a one-person LLC, where, without the formality of an agreement, the LLC will look a lot like a sole proprietorship. Just the fact that you have a formal written operating agreement will lend credibility to your LLC’s separate existence," it added.
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