Entrepreneur provides an excellent summary of the reasons why a Limited Liablity Company Operating Agreement can fail in this Article. Setting up the business correctly to start and periodically reviewing the changing ownership needs are key to a successful LLC Operating Agreement. The needs and agreements between the parties may change so its important to keep the agreements current. Working with an attorney to draft, negotiate and review the company's operating agreements and other membership documents is key to a successful business formation and operation. Working with an attorney up front may increase the initial costs of formation, but often times saves money and headaches down the road. The attorneys at Loftin|Bedell, P.C. work with clients on the formation, operation and dissolution of LLCs, Corporations, Professional Corporations, Joint Ventures and partnerships.
One question we commonly receive from small business clients is, "Why does my single-member limited liability company (LLC) need an operating agreement?" To answer this question, we will briefly take a look at the California Revised Uniform Limited Liability Company Act ("RULLCA"), then address possible reasons why an operating agreement may be beneficial.
California limited liability companies (LLCs) are governed by the California Revised Uniform Limited Liability Company Act (RULLCA). Under RULLCA, LLCs may be managed either by all of the members ("member-managed") or by one or more managers ("manager-managed"). As a default rule under RULLCA, the LLC is managed by all of its members unless the articles of organization and operating agreement provide otherwise. Corp. Code § 17704.07(a). Thus, we must ask "In practice, how do these two management types function?"
Are there still fiduciary duties in a family owned business? Are they different or relaxed because the stockholders all happen to be related to management?
Protecting the corporate veil is a critical business concept. One of the primary reasons for having an LLC, C-Corporation or S-Corporation is to provide liability protection to you and others in the business. Many businesses evidently download forms from some site, fill them in, register with the State of California and the IRS and they are "in business". The corporate structure exists to protect you as the owner(s) from personal liabilities, and to preserve your personal home and assets and keep them separate from the business. When a creditor is pursuing company, the first thing they will ask to see are your corporate documents. Their primary goal is to "pierce the corporate veil". Many forms of corporate entities require specific regular actions such as a meeting of the stakeholders with recorded minutes. You want to make sure that you do not "co-mingle" your business assets with your personal assets. There are other strategies to ensure that you maintain the protections of the "corporate veil" to safeguard your personal assets. You've worked so hard to start and build your company. It's just as important to make sure you seek the advice of experienced business attorneys who can help you to protect them.