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running a business can be a complicated endeavor whether your company is an s corp c corp or an llc it's very important to lay out the groundwork for its internal operation and make sure all of the stakeholders are on the same page from the get-go corporate bylaws and operating agreements help companies do exactly that let's start with corporate bylaws what exactly are they when a company is legally incorporated this is one of the first documents approved by the board of directors think of it like an internal manual bylaws describe the standards of operations for your company and determine important terms regarding board and shareholder meetings voting rights responsibilities quorum and more you may ask is establishing bylaws required for all corporations well that depends on what state you live in currently 31 states legally require corporate bylaws well more than a dozen states don't you can check out the link below to see a complete list of the states regardless it may be helpful to have a legal document like the bylaws that keep the board of directors and officers in agreement and the company running smoothly no two sets of bylaws are likely to be exactly the same because every company is different but they generally cover many of the same provisions including the company's official name and statement of purpose board of directors and quorum meaning how many directors must be present in order to make decisions on behalf of the company company officers their roles and how they will be elected or appointed shareholders stock certificates and dividends indemnification which may protect the company's board of directors and officers against losses or damages in connection with the company and finally an amendment procedure for making changes to the bylaws in the future because it will likely be needed as your company morphs and grows now let's take a look at corporate bylaws counterpart for llcs the operating agreement operating agreements serve as key internal documents for llcs by outlining the functional and financial standards that will govern the ins and outs of the business when the operating agreement is signed by the company's owners also known as the members it acts as an official contract binding them to the rules similar to bylaws an operating agreement can be kept as a confidential document while it's legally required in only five states it is highly recommended that llcs draft an operating agreement anyway without it businesses have to abide by the default terms of whatever state they are operating in which may be general in nature and not very applicable to your own company as a legally winding document operating agreements typically contain many important provisions that detail the unique logistics of your company some helpful things to include in an operating agreement are percentage of members ownership voting rights and responsibilities powers and duties of members and managers distribution of profits and losses meeting procedures rules for buyouts and buy sells and lastly procedure for making amendments to the operating agreement in the future we're e-forms the largest online database of form-fillable legal forms and we have just about every document you can imagine for corporate bylaws operating agreements and more click the link to access templates that can guide you right through the process you
Thanks for your comment Luciano Postema, have a nice day.
- Johnie Colone, Staff Member
okay so you formed your LLC and somebody told you that you need an operating agreement what goes into that that's we're gonna talk about in today's episode hello my name is Jim Hart I'm the founding attorney here at Hawthorn law I started Hawthorn law and helped online entrepreneurs creators and visionaries like yourself figure out how to protect your business legally and grow something and build something that truly matters in the world and today what I want to talk to you about is your operating agreement and by the way if you're not sure what an operating agreement is or what it does I've got a link up here too for mistakes that entrepreneurs make when they're forming the LLC not happening operating agreement is one of them and we talked to you about that about why that is in that video so check that out an operating agreement does a lot of things basically what it is it is a contract between you as the business owner and you as the business owner if you're a single member LLC or your business partners if you are a multi-member LLC about how the business is going to be run different things that you're gonna do and we're gonna we're going to talk about all that here today what goes in the operating room it's basically the backbone of your business at the foundational document there's going to talk about everything you need to know about how to run and operate your LLC makes sense also does a huge thing is it keeps people from piercing the corporate veil if you've got an operating agreement in place and you can show that you've been following the operating agreement then if you ever were to get sued then it's gonna keep people from going through your business to try and get at your personal assets which is something that that that's one of the reasons we start an LLC it's called a limited liability company for a reason you're trying to limit your liability in the event something goes wrong with the business so let's talk about what goes into an operating agreement so the first section you want to have in your operating agreement is it's just a preliminary section that's gonna have a name your name the name of the business the purpose of the business who the registered agent is what your address is what state are you forming the business and all those type of things are going to go into this initial section of the operating agreement the next section of the agreement is going to talk about how the business is going to be managed and by managed I mean is it going to be member managed or is it going to be manager managed there's differences between those two that's probably a good subject for a future video make a note to self talk about member manage versus multiple member Vantage versus manager manage as a tongue-twister isn't it so that's the second secretary you need to make a decision about that a lot of people make mistakes when it comes to deciding how they want to manage their business and whether it's gonna be one or two one or the other and they just go and file their corporate paperwork and don't really think anything of that but it is an important decision if you if you did the wrong thing if you made a mistake don't worry you can change that later not a huge deal but that's just something you want to be aware of when you're drafting an operating agreement next section is who are the members of the LLC your going to have a list of all the members of the LLC it might be that it's just to you it might be that there's other people whoever it is you want to have a list and you want to include that in the agreement next section of the upper agreement how is your LLC going to be taxed you need to make sure you have that information in the agreement and you need to decide that ahead of time because there are strict deadlines as to when you can make these elections come on cycle whether you want to be taxed as just a sole sole proprietorship or partnership an S corporation or C corporation you need to make that election and you need to decide that and you should typically include that in the operating agreement cool makes sense good and by the way if you haven't already subscribed to the channel I would greatly appreciate if you just take a minute hit the little button down there below and hit the subscribe button hit the bell thingy so you'd notify whenever we post new videos every Tuesday and Thursday evening and also give us a thumbs up because we like the thumbs up I mean who doesn't like a thumbs up alright back to the list the next section of the operating agreement you want to put in there how much money are you going to contribute how much money are the other members are going to kind of contribute to the LLC one of the big benefits of an LLC versus other things is your ownership does not necessarily have to be in proportion to how much money you've contributed to the LLC with an S corporation for example if you're filing a straight S corporation and it's not an LLC you've got a corporate entity and then you made X election status the ownership interest in the corporation the shareholder interest has to be in proportion of the amount of money that was contributed that's not necessarily the case with an Alice see there's a lot of flexibility there in terms of you can one person contribute a lot of money and the other person can contribute a lot of sweat equity and they could be 50/50 members of an LLC which is a nice benefit to an LLC versus an S corporation that's just an aside next section you want to put in there is how and when our contributions and distributions can be made from the LLC so how much money are you going to be expected to put into the LLC on a regular basis or alternatively how are you gonna decide when distribution should be made from the LLC how are you decide how much money you're going to make in a salary versus distributions versus profit whatever you want to include something about that in your operating agreement but next you want to include just some general legal provisions in the operating agreement what type of Records are you going to keep who the officer is going to be of the LLC or you can vote yourself as a president or manager or something like that how often are you going to have meetings for the LLC annual quarterly something else all that needs to be included in the operating agreement and then you need to show that you've been actually following that so the last section well there's one other section after this but the last major section is how are you going to make changes or amendments to the operating agreement you want to include a section in there it talks about how you might make changes to the agreement if something were to happen and then the final section is going to be signatures and that's so that's where you and all the other members are going to sign the agreement to say that you basically ratify the agreement forming the LLC yada yada yada also you can include spousal a spousal consent if required by your state at the state where you're filing the LLC some states require to that some states don't you want to check with your state rules the other thing I'll tell you about
Thanks kalinkaiO your participation is very much appreciated
- Johnie Colone
About the author
I've studied space nuclear power at University of Wisconsin-Milwaukee in Milwaukee and I am an expert in uv astronomy. I usually feel silly. My previous job was soil conservationist I held this position for 20 years, I love talking about bullet journaling and archery. Huge fan of Rick Ross I practice skimboarding and collect bobbleheads.
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