Some Thoughts on Operating Agreements for Limited Liability Companies

Rincker Law Business/Commercial Law Leave a Comment

If you have decided to form a Limited Liability Company (“LLC”) or Family Limited Liability Company (“FLLC”), you should strongly consider creating an Operating Agreement.  In New York, the Operating Agreement must be executed within 90 days of forming your LLC.  Farms and food entrepreneurs are discouraged from using an online form as the Operating Agreement should be tailored to your specific business.

  • You should say what type of entity your business is and the registered agent of the company.  You should also say where your principal place of business is.
  • It is wise to include a provision that will describe what type of contribution will be made into the company.  For example, any initial capital contributions and whether there is an ongoing obligation to make contributions.
  • You should explain how profits, losses, and distributions will be shared among the members of your LLC.
  • You should include a paragraph about management of the business. LLC’s in New York can be member-managed or manager-managed.
  • You should address how the transfer of interest will occur.  This is especially important for LLC’s when you want to keep the shares within the family.  You can even have a provision that restricts family members from selling their shares outside the family unless there is unanimous consent.
  • Your Operating Agreement should clearly say whether the members will be compensated and, if so, how they will be paid.  This can include any benefits (such as health insurance or retirement) or “in kind” compensation (including housing and/or food).
  • It is always a good idea to add a section about bookkeeping and accounting to your Operating Agreement.  Who will be maintaining the books?  What kind of accounting method will you be using (cash basis or accrual)?
  • You should address the LLC dissolution and liquidation.

Keep in mind that an Operating Agreement is an internal document and does not get filed publically.  Farms and food entrepreneurs are encouraged to seek counsel on LLC formation and corporate formalities.  If you’ve had a LLC for a while and have never drafted an Operating Agreement or had any minutes from member meetings, I recommend having a “LLC Checkup” soon with an attorney who understand your food or agriculture business.

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