The operating agreement, is a legal document that covers the legal and financial provisions of your company. The limited liability company operating agreement in New York covers important details such as voting, who’s in charge, procedures for member additions and resignations, how you share profits and losses, and membership. Companies use an operating agreement in New York State to govern their operations and simplify their management structures.
While the law does not explicitly require you to have an LLC operating agreement, it expects you to have some guidelines in place. Take the example of a dissolution where you cannot decide who walks away with what. The first thing a court would ask for is the operating agreement to clarify what you have decided. An LLC without an operating agreement will be subject to the New York’s “default rules”. You can now see why the operating agreement is important.
Other than avoiding generic laws, having an operating agreement also helps with:
You also get greater respect from New York courts.
You can make your operating agreement via:
You also have to be clear on if the members are trusts, LLCs, corporations or individuals while indicating their names and addresses. Against each entity, state how much this person/ company has brought to the organization. It includes money, services, knowledge, machines and other assets. You also need to include whether you will need or allow contributions in the future. Be clear about these as they affect the sharing of resources at the time of dissolution. The court may also require clarification on this if your internal affairs end up in the court system.
The admission or lack thereof of other members is important. This allowance allows the company to expand but it also comes with the risk of a power shift. Are members willing to bring on more resources?
You also need to discuss how often you will meet. It can be weekly, monthly, quarterly or even yearly. In some cases, you can even decide to only meet when it’s necessary. The law is lenient on this and nobody will come knocking on your door demanding minutes from your last meeting. If any voting will take place, you can divide the rights based on ownership or allow everyone to have one vote. It can be a source of disgruntlement in the future and you need to be clear about it from the start.
It is important that you choose a tax classification for your company. You can work with the default based on the number of members or you can elect another option and file the same with the state.
Who will enter into contracts on behalf of the company? You can allow any member to do this or can select specific people for this role. Even so, some decisions will require everyone to be on board e.g., the release of payments above a specific amount.
Finally, are members allowed to start businesses that directly compete with the parent company? You need to decide now.
You can now sign the operating agreement of LLC in front of witnesses and keep it in your records. The state will not require it. However, you will need it when opening a bank account or to defend your actions in court.
It depends on how you draft the operating agreement for LLC in NYC. With an attorney, it can cost you $100 or more. Professional services can do it for about $40 to $100. Doing it yourself using an online generator will barely cost you a dime. But where you are dealing with technical matters, it’s best to engage a lawyer or pro service.
Every state has default laws applicable to LLCs where no clear management guidelines are in place. These come into effect when you go through the court system after failing to agree on the best course of action. Unfortunately, these default definition laws are generic and are not suited to your business. It’s easy to find yourself on the losing end because the laws may favor some members and leave you in a tough situation. To get ahead of the problem, protect yourself today by drafting an LLC operating agreement New York.