Friday, October 11, 2002

what is an LLC's Operating Agreement, and where can I get one?

An Operating Agreement is critical to the planning, development, and operation of a Limited Liability Company. It should directly reflect the business plan and correctly frame the relationships, rights, duties, and authorities of the members and officers.

As it should reflect the business plan, there should be a business plan. So if you are going to create an LLC, start at the beginning and make a business plan. A business plan does not need to be much more than an improved outline of what you want to do and how you plan to get there. The process of writing it down is very helpful and may highlight problem areas for you before you experience the problem.

Here are some links to sites which can assist you in preparing a business plan:

Small Business Administration

Remember, it is the process of developing the business plan that may be as helpful as the finished product itself. Don't skip this planning process by blindly incorporating someone else's sample form, or you will have missed the point. You may find it helpful to consult with a professional during this planning phase.

Once you have your Business Plan, then we start with the drafting of your Operating Agreement. The LLC's Operating Agreement is akin to a mix between a corporation's by-laws, and a partnership agreement. The assistance of an attorney may be helpful to you at this stage to frame the concepts that you have developed in your Business Plan in the context of the formal drafting of the Operating Agreement. Forms are useful to the extent that they remind us of topics that should be addressed, but they are dangerous in that they can be misused to drive the drafting process instead of being driven by it. They are doubly dangerous because they tend to encourage people to skip the planning phase, and just "fill in the blanks". With every business endeavor, planning is critical. And anything that interferes with or prevents planning is to be viewed as an obstacle, not a help. As my Granny used to say... "an ounce of prevention is worth a pound of cure".

[October, 11, 2002, 3:19pm -- Larry, another resource for putting together a business plan that I like very much is from the Online Business course at I like it so much, that I'm adding it here as an addendum to your post rather than as a comment, so that people interested in this topic can also visit over there. I think it approaches everything from a very practical perspective, which makes it worth looking at. The quizzes it includes aren't really necessary, but the insights the course provides are really good. -- Bill]

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