Are operating agreements really necessary for LLCs?

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Are operating agreements really necessary for LLCs?

The simple answer to that question is yes. Even though Illinois does not require your limited liability company to have an operating agreement, it could provide you with many benefits. Operating agreements outline how the company will function, among other things, and putting those kinds of details in writing could help give your new company direction and avoid many potential conflicts in the future.

This type of agreement also gives you the chance to outline how you want things instead of relying on any statutory defaults set forth in Illinois law. For instance, no matter how amicable things are with you and the other members right now, the issues of ownership interest, shares of profits and losses and division of managerial tasks could easily become points of contention at some time in the future. Putting these understandings in writing provides everyone involved some protection and a guide when needed.

Other issues that require attention in an operating agreement include voting rights, each member’s rights and responsibilities to the LLC and an overall plan for managing the business. In addition, some procedures need to be in place for buying out a member who wants to leave the company and allowing new members to buy into the company. What happens if a member dies or gets divorced? These questions can be answered in this document.

Operating agreements provide a guidebook and a plan for the future. While creating one, you and the other members may find that you do not have the same visions for the company. These kinds of discrepancies need to be worked out before moving forward to avoid conflicts in the future. Making sure that your operating agreement protects the rights of everyone involved may require the inclusion of an attorney in the process who understands the elements these agreements need and can help ensure that it complies with the law.

Source: FindLaw, “Making LLC Operating Agreements“, Accessed on Oct. 2, 2017

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