Do You Need an Operating Agreement for Your Small Business LLC? Here is my LLC Operating Agreement Checklist.

As you may know, a “corporate kit” includes a pre-made form of limited liability company operating agreement.  There is no telling how complete these are and whether or not they were prepared by a corporate attorney.  Certainly an off-the-shelf operating agreement is not customized for your needs.  I recommend having a New York Small Business Attorney (corporate attorney) review and/or draft and negotiate the operating agreement — especially when you have two or more members.  Here is a checklist of some of the items to consider addressing in your operating agreement (for that matter, these are some of the items that you should consider addressing in a shareholder agreement or a partnership agreement).

• General Provisions
  • Purpose of LLC — Will this be a special purpose entity?
  • Scope of activity — Geographic boundaries, etc.
  • Limitations on operations — Incurrence of indebtedness, other?
  • How many classes of membership?  What are the membership rights and obligations of each class?
• Capital Contributions to the LLC
  • Have there been any to date?
  • Percentages
  • Additional contributions
    • Ability to call
    • Default provisions (straight dilution or penalties?)

• Governance of the Limited Liability Company
  • Day-to-day management of the LLC
  • Company opportunities
  • Conflicts of interest
  • Major decisions
  • Indemnification
  • Resolution of deadlocks
    • Arbitration
    • Buy/Sell
      • Methodology for determining price — By Triggering member, Appraisal, or Arbitration?

• Distributions of Profits / Allocation of Losses
  • Timing
  • Amount
  • Capital vs. profits
  • In-kind distributions

• Admission of Additional Member(s) to the LLC
  • Any new members contemplated?
  • Terms and conditions of admission

• Withdrawal of Member from the LLC
  • Ability to withdraw
  • Confidentiality
  • Non-compete
  • Other considerations?

• Transfers of LLC Membership Interests
  • Permitted?
  • To estate planning vehicles
  • To family members/affiliates

• Third party transfers
  • Right of first offer/right of first refusal
  • Other conditions to transfer

• Termination of the Company
  • Fixed term?
  • Trigger events?
  • Standard (involuntary bankruptcy, court order, etc.)

Of course, it is best to discuss the above New York LLC Operating Agreement Checklist with a New York Small Business Lawyer.