Many LLCs are family-owned businesses, some already led by the second generation. These small business owners may wonder if their family-owned LLC still needs an operating agreement. The short answer is yes. At the same time, it may seem like an unnecessary hassle, but having an operating agreement in place can protect your business and your family in the long run.
Benefits of Operating Agreements for an LLC
An operating agreement is a legal document that outlines your LLC’s ownership and management structure. It serves as a roadmap for how your business will operate and can help prevent disputes between owners, especially when the owners are family members. Here are some reasons why having an operating agreement is important
Protects Your Limited Liability Status
One of the main reasons people choose to form an LLC is to limit their personal liability for business debts and obligations. However, if you don’t have an operating agreement in place, your LLC may be considered a sole proprietorship or partnership, which could put your personal assets at risk. By having an operating agreement, you can clearly establish the limited liability status of your LLC.
Defines Ownership and Management Structure
An operating agreement can help prevent disputes over ownership and management of your LLC. It should outline who owns what percentage of the business, who has decision-making authority and how profits and losses will be distributed. This can be particularly important in a family-owned business, where emotions can run high and disagreements can quickly escalate.
Protects Your Business in Case of Death or Disability
If one of the owners of your LLC dies or becomes disabled, an operating agreement can guide how to handle the situation. For example, it may specify how the deceased owner’s interest in the business will be divided or how decisions will be made in case of a disability. Without an operating agreement, these decisions may be left up to state law, which may not align with your family’s wishes.
Provides a Clear Succession Plan
An operating agreement can also help you plan for the future of your business. It can outline a clear succession plan, including transferring ownership to family members or selling the company to a third party. Having a clear plan in place can help prevent confusion and disagreements down the road.
Help with Georgia LLC Operating Agreements
Having an operating agreement is essential for any LLC, including family-owned ones. It can protect your limited liability status, define ownership and management structure, protect your business in case of death or disability and provide a clear succession plan. If you don’t already have an operating agreement, now is the time to create one.
It may seem like a hassle, but the Law Offices of S. Mark Burr, P.C. in Alpharetta can save you time, money and stress while helping you create efficient operating agreements to protect your family and your business. Contact us today to learn more.