The Operating Agreement is an Essential Document for an LLC

Every limited liability company (LLC) needs to have an operating agreement- whether there is one member or twenty.  Unlike the North Carolina Business Corporation Act (N.C.G.S. Chapter 55), the Limited Liability Company Act (N.C.G.S. Chapter 57C) is minimal and does not sufficiently address governance of the company.

While Chapter 55 contains many default rules (i.e. rules that apply if the company’s bylaws are silent), Chapter 57C has few.  As a result, it is imperative that an LLC’s operating agreement comprehensively address the issues that may arise.

The operating agreement is the governing document of the LLC.  It sets forth how decisions will be made and establishes the duties and rights of members and managers.  It is the first place to turn when a dispute arises or when there is a question about the appropriate manner of acting in a given situation.

Finally, the existence of an operating agreement supports the notion that the LLC’s corporate structure is legitimate, and is a corporate formality evidencing the fact that the company is separate and distinct from the members.

The operating agreement is not the only document the LLC needs in order to be effective and to document the relationships of those involved with the company.  It is, however, the most basic, key component of an LLC’s corporate documents.  If drafted correctly, the operating agreement can help your business avoid unnecessary and expensive litigation in the future.