You Should Have an Operating Agreement
If you are contemplating the formation of a legal structure for your business, there are certain basic requirements to be taken into account. Each structure of business has benefits and risks associated with it. A sole proprietorship or partnership is well suited for a business which has few potential risk factors associated with it. The risk in a sole proprietorship or partnership is that the business owners are personally liable for all the business debts and obligations. This means that if your business generates a claim for damage due to any reason from a customer or an employee, your personal assets and cash can be appropriated for paying the damages or claim. To limit your personal liability from business operations, the best option is a Limited Liability Company or LLC.
LLC form is best suited for small business operations which involve considerable transactions and where the chances of generating a liability or claim exist. LLC formation is relatively simple and straight forward. It does not involve too many formalities either in its formation or maintenance when compared to a corporation. The advantages of form LLC is that while it limits your personal liability, it offers great flexibility in management and control of you business.
LLC formation is not so hard that you have to engage lawyers and pay huge fees. All States provide basic information in the formalities and procedures involved in llc forms. What is not available on the State websites, you can collect from the state agency dealing with the registrations. The basic steps for forming an LLC are
- Choose an available business name in line with your states regulations. Some names or nomenclatures are prohibited as a part of an LLC name.
- Draw up the required documents such as the Articles of Organization and the Operating Agreement.
- File these documents with the appropriate state agency along with the application and pay due fees.
- Obtain all the relevant licenses and permits needed by the LLC to run a business or to employ people.
Some states require that a public notice should be issued regarding the LLC formation.
The Operating Agreement is critical in an LLC’s conduct of business. Even if it is a single owner LLC, the operating agreement provides clarity in the LLC operations and creates individuality to the structure. Where there is more than one member, the operating agreement helps in writing every operational term into black and white to avoid any ambiguity or future disputes.
