Private Equity/Venture Services

The two key documents for a new LLC are:

• Articles of organization
• Operating agreement

The articles of organization are filed with the secretary of state.  They contain some very basic information about your LLC, including its name and whether it is managed by a manager or managers.  If the articles do not say that the LLC is managed by a manager or managers, then it is automatically deemed to be managed by the members.  Articles of organization are required to include much less information than is required to be included in the articles of incorporation for a corporation. 

LLCs are also required to have an operating agreement.  The operating agreement does not have to be written.  It can be oral, but a written agreement is better for a number of reasons, including just as evidence of what the agreement of the members actually is.  Because there are fewer statutory formalities around the operation of LLCs than there are with respect to corporations, the operating agreement is a good place to memorialize the members' agreement with respect to the operation and management of the company. 

Matters that are addressed in a written operating agreement include the following: 

• the process for calling and holding members' meetings;
• the powers of the manager or managers and process for holding meetings;
• duties of officers and the process for appointment and removal of officers by the board;
• limitations on members' ability to transfer their ownership interests;
• repurchase rights  on a member's death, permanent disability, termination for cause or resignation from employment with the company;
• preemptive, co-sale, tag-along and other rights (these concepts are discussed in the context of corporations in the previous blog post "I'm Raising Raising Venture Capital for My Company and I Can't Understand Half the Jargon They are Using. Can You Help?");
• governance (for example, the agreement may require that significant management decisions require the consent of some or all of the members or the managers);
• allocation and distribution of the company's income; and
• miscellaneous (restrictions on competition, treatment of confidential information and dissolution of the company).