What If My LLC Doesn’t Have an Operating Agreement?
One of the first and most essential steps you’ll typically take when starting or running an LLC is creating an operating agreement. Many ask, “What if my LLC doesn’t have an operating agreement,” and some use generic templates in an attempt to protect their interests. So, what are the risks, and how can an estate planning attorney help? Let’s discuss.
What If My LLC Doesn’t Have an Operating Agreement?
Operating agreements are governing frameworks for your business outlining rights, responsibilities, and procedures among members. They provide clear instructions on how your business will operate by defining day-to-day functions, including how decisions are made, how profits and losses are divided, and what happens if the business is dissolved or a member leaves.
Therefore, a missing LLC agreement puts the stability and efficiency of your business at risk, especially as it scales or changes. Though not required by law in some states, the document is highly recommended because the absence of an operating agreement may result in your LLC being governed by default rules, depending on the state in which you operate. Unfortunately, default rules may not reflect the needs or wishes of members and could cause unintended consequences.
Examples include profits and losses split evenly among members, regardless of what was intended. It could also mean decisions regarding the business must be made unanimously, even when majority voting would make more sense. A missing LLC agreement also makes it more challenging to resolve disputes or exit without conflict.
Potential Risks of a Missing LLC Agreement
What if my LLC doesn’t have an operating agreement, and I follow default rules? The outcome can be tricky, complicated, and potentially costly. Here’s why:
- Ownership and management distribution structures depend on operating agreements to prevent member disputes over decision-making and business control.
- LLC agreements provide a functional mechanism for resolving disputes without forcing members to endure time-consuming litigation.
Meanwhile, not having an operating agreement could compromise the “limited liability” protection your LLC provides, especially if you fail to document dealings properly or if the business is challenged in court. A missing LLC agreement could make it more difficult to outline beneficiary transfers upon death, disability, or departure. Some courts may even be more inclined to pierce the corporate veil and hold members personally liable for debts.
A formal operating agreement helps determine how the LLC’s financials are structured, including taxation. What happens if your LLC doesn’t have an operating agreement at this stage? In some cases, businesses may be forced to follow default tax codes, which could be far less favorable for the members.
Do I Need an Estate Planning Attorney to Get an LLC Operating Agreement?
If your LLC lacks an operating agreement or needs to create one that reflects new interests, now is the time to act. An estate planning attorney specializing in LLCs and business law can help you draft a document that ensures your operations align with goals and comply with the rules.
An estate planning attorney can help you incorporate provisions to protect your interests and support a smooth transition of ownership in the future.
Getting Started
Unsure where to start? For more information or to develop a comprehensive LLC operating agreement, contact Nicole Pavlik Law Firm. Schedule a consultation today.
Conclusion
What if my LLC doesn’t have an operating agreement? Here’s the bottom line: A missing LLC agreement might seem like a minor oversight, but not having one can open the door to multiple liabilities. Don’t jeopardize your business’s stability. Consult Nicole Pavlik Law Firm to protect your business.