The Importance of Managing Your Operating Agreement Post-Signing

After drafting and signing an operating agreement for your LLC (Limited Liability Company), it's crucial to understand what steps you should take to ensure your business is running smoothly. This article discusses the best practices, common mistakes to avoid, and the importance of keeping your operating agreement current.

Understanding the Role of Your Operating Agreement

Your operating agreement is much like a prenuptial agreement for a business. It outlines the business rules, member rights and responsibilities, and dispute resolution processes. It's a critical document for ensuring the smooth operation and growth of your LLC. Much like a marriage, it's vital to understand all the terms before signing and to review the document periodically.

Keeping Your Operating Agreement Current

Once your operating agreement is signed, it's essential to keep it current. This means that the terms and conditions of the agreement should accurately reflect the current state of your business. Changing circumstances, such as bringing on new members, leaving members, or altering business operations, should be incorporated into the agreement. Failure to update the agreement can lead to misunderstandings and conflicts.

Key Considerations for Updating Your Operating Agreement

New Members: If a new person joins the company as an owner, their ownership and management interests need to be reflected in the agreement. Departing Members: If a member leaves the company, their rights and responsibilities should be terminated, ensuring clarity and legal protection for the remaining owners. Business Structure Changes: If there are changes in the structure or operations of your business, the agreement should be updated to reflect these changes. Legal Requirements: Make sure to comply with any legal requirements and regulations for LLCs in your jurisdiction.

Where to Store Your Operating Agreement

Several copies of the operating agreement should be kept in safe locations to ensure accessibility and security. Keep a hard copy in your corporate records book, which is should be stored in a secure place. Additionally, maintaining an electronic copy is advisable for easy access and backup.

Recommended Practices for Storing Your Operating Agreement

Corporate Records Book: Keep the agreement in a corporate records book, which should contain other important documents such as articles of organization, minutes, IRS EIN letter, and membership or unit certificates. Secure Storage: Store the paper copy in a secure location such as a fireproof safe or a locked office drawer. Ensure that it is protected from damage and unauthorized access. Electronic Backup: Keep an electronic copy of the agreement on a secure digital platform or cloud storage, such as Google Drive or Dropbox, for easy access and backup.

Importance of Compliance and Documentation

Proper documentation is key to demonstrating that your LLC has complied with all applicable formalities. Keeping a record of important documents in a central location can help prevent disputes and ensure legal compliance. This includes storing the Articles of Organization, meeting minutes, IRS EIN letter, and other pertinent documents.

For example, maintaining a document that shows the endorsement of the Articles of Organization and subsequent resolutions can provide evidence of the company's formation and compliance with state laws. Similarly, keeping track of IRS EIN letters can help demonstrate that the business has taken the necessary steps to comply with federal tax regulations.

Conclusion

In conclusion, managing your operating agreement post-signing is crucial for maintaining the health and legal robustness of your LLC. By ensuring the agreement is current, properly documented, and securely stored, you can avoid future complications and ensure that your business operates smoothly.

Key Takeaways

Keep your operating agreement current and update it as necessary. Store your agreement in a corporate records book and a secure electronic format. Comply with legal requirements and keep all pertinent documents organized.

Disclaimer

While this information provides valuable guidance, it is not a substitute for professional legal advice. Seeking the advice of a licensed attorney in your jurisdiction is always recommended.