If you`re considering starting a business in Arizona, forming a Limited Liability Company (LLC) may be a wise choice. An LLC is a popular type of business entity because it provides personal liability protection for the owners, also known as members. In Arizona, forming an LLC requires specific steps, including drafting an operating agreement.
What is an Operating Agreement?
An operating agreement is a legal document that outlines the internal workings of an LLC. It sets forth the rules and procedures that govern how the LLC operates. It`s important to note that operating agreements aren`t required by Arizona law, but they`re highly recommended. An operating agreement can help prevent misunderstandings among members and protect the LLC`s limited liability protection.
What Should be Included in an Operating Agreement?
The contents of an operating agreement will vary depending on the LLC`s needs, but typically include the following:
1. Formation and Purpose: This section outlines the LLC`s formation and the purpose of the company. It typically includes the LLC`s name, the members` names and addresses, and the date of formation.
2. Ownership and Management: This section details how the LLC is owned and managed. It includes the percentage of ownership for each member, the duties and responsibilities of each member or manager, and how decisions will be made.
3. Capital Contributions: This section outlines how much capital each member is contributing to the LLC and how those contributions will be made.
4. Distributions: This section details how profits and losses will be distributed among the members.
5. Dissolution: This section outlines the steps required to dissolve the LLC if necessary.
How to Create an Operating Agreement?
Creating an operating agreement can be done by the LLC members or with the help of a legal professional. Here are steps to creating an operating agreement:
1. Evaluate the LLC`s needs: Consider the LLC`s ownership structure, management style, and other unique features when creating an operating agreement.
2. Draft the agreement: Decide the structure of the agreement and create it. Make sure to have it reviewed by a legal professional or an experienced copy editor.
3. Sign the agreement: After finalizing the agreement, all members must sign and date it.
4. Keep a copy on file: Store the operating agreement in a safe place, since it will be needed in future actions.
Conclusion
An operating agreement is an important document that outlines how an LLC operates. Although it`s not required by Arizona law, it`s highly recommended. Creating an operating agreement is a crucial step in forming an LLC and can save the members a great deal of time and money in the long run.