The operating agreement is so important to your LLC.  Have you really paid attention to and maintained this essential element of your LLC over the years?  How does it help ensure the stability and continuity of the company?  Why shouldn’t you use a downloaded boilerplate for your operating agreement?

The document that governs a California Limited Liability Company, known as an LLC operating agreement is a customized business contract that becomes part of the corporate documents of any LLC.  The operating agreement captures important agreements between the members or owners of an LLC and provides important protections for each member of the LLC and for the business itself.  It also prevents issues such as commingling of funds or assets, as well as disputes between members in an LLC down the road saving each member and the company itself a substantial amount of money and risk.

The reason why the operating agreement is so important to your LLC is that it should clearly establish the responsibilities of each member and their duties on a regular basis.  The operating agreement should also provide a road map for unexpected or special events such as the death, incapacitation, personal bankruptcy or divorce of one of the members.  Every LLC operating agreement is unique, and the Watkins Firm cost-effectively tailors these agreements to the specific details associated with the individual members, as well as the planned operations of your LLC.  The purpose of an LLC operating agreement is to establish the business reason or purpose for which the LLC was formed, the contributions made by each member and how those contributions are to be made, the voting rights and liabilities associated with each member, procedures for the division (or reinvestment) of profits, adding new members in the future and how the company will be managed.

The operating agreement should also provide important guidance on how to handle difficult situations, such as when a member isn’t carrying or fulfilling their share of the responsibilities of how to protect the member interest of a “community” (marital property) in the event of a divorce.  The LLC operating agreement should specify how a member’s interest in the company is to be valued, and provide protections which ensure the long term stability and continuity of the company.

Pro-Tip: “People who have their own businesses or are forming or purchasing their own businesses, should seek a business lawyer as a counselor, sort of like an advisor and an older experienced lawyer. Like we have at the Watkins firm. We’ve seen it all. We’ve seen every type of company, every type of business. And we’ve been there through the good times and the bad times. And so we have a lot of insight above and beyond just forming your entity, like some kind of form you find on the internet. We give you real world business advice that is tied to the law.

Why do you need an attorney to help you set up an LLC, and what is an overview of the process of business formation?

The purpose for a business formation is varied and wide. You have different types of companies, different types of licenses, different types of product, different types of ways of making a profit companies that just hold asset. You have companies for asset protection. You have companies for professional corporations, companies for real estate development companies for healthcare companies, for international business, the list goes on and on. And so when you come to an experienced lawyer who has experience with your type of company, and you’re going to get insights and you’re going to get formation and you’re going to get a custom fit for the documents that are required in your specific type of business and for what your business goals are.

We customize our documents when we form a corporation. Unlike when you go to the internet or some of these companies that give you a, a bland agreement, that’s neutral, we give you an agreement that is biased in your favor, which is important because is you may want to have investors. You may want to sell the company someday. You may want to own the intellectual rights. You may have an invention that you’d like incorporated in that company. On top of that, one of the big reasons for performing a company is making sure that it’s protects you. I mean, that’s the corporate veil. If your documents aren’t formed, right? If you are not set up and organized correctly, if all of the legal requirements for having a separate entity are not in place, then you’ve wasted your time and money because you will have no protection corporation is somewhat like an insurance policy.

If you do everything right, and something goes wrong some, one of your employees or even fellow members does something bad, you are personally protected. You’re only liable for the amount of money you capitalize that corporation with. So that means you are protected. If you do everything right, and you can also use this corporation, sell it, merge with it and everything with it. And all of the time you try to do those things, the other business professionals, big companies seek an acquisition or who wants to do business with you is going to look at your corporate documents and say, yes, they did everything right. And it’s professional.  And your company will be worth much, much more!” – Dan Watkins, Founding Partner

These forms cannot be downloaded as they are highly customized and must contain specific clauses and wording which is unique to California law and the situation at hand.  Are you interested in learning more about what makes an LLC operating agreement important and the steps required to implement one for your LLC?  We invite you to review our podcast Episode 6 – Why Do You Need a Business Lawyer as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.