Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

Does Your Small Business LLC Have an Operating Agreement?

Author: Scarinci Hollenbeck, LLC

Date: April 19, 2013

Key Contacts

Back

New York, like many states, requires all limited liability companies to have an operating agreement, regardless of size. In New Jersey, they are not required, but they are certainly a good idea.

An operating agreement is essential to the smooth operation of an LLC because it governs the company’s financial and business decisions. For the members of the LLC, an operating agreement has several advantages. Most importantly, it provides evidence that the company is truly an LLC and not a sole proprietorship or partnership, and thereby helps shield members from personal liability. Moreover, having a written agreement in place not only helps avoid disputes, but also outlines how they will be resolved when they do arise.

In the absence of an Operating Agreement, the rights of members of a New Jersey LLC defaults to the controlling provisions of the statute- which may or may not accord with the intentions of the members.  And even though you may already have an Operating Agreement, with the passage of a revision to New Jersey’s LLC statute that became effective March 18, 2013, you may have overlooked some of the provisions that you might want to include to avoid having the statutory provisions control.

While many “standard” operating agreements are available, to gain the most benefit and make sure the members’ legal interests are protected, the contract should be tailored to meet the needs of the company. Below are a few key issues that should be addressed:

  • Business activities: These provisions should address the purpose and scope of the LLC and any limitations on its operations.
  • Contributions: These provisions should establish the percentage of members’ ownership and their ability or obligation to make additional contributions and the rights of non-defaulting members.
  • Governance: These provisions should lay out the members’ voting rights and responsibilities as well as the day-to-day management of the LLC, such as the duties and powers of managers.  In the absence of an Operating Agreement, all members are managers with an equal say.  This could make the conduct of daily business unwieldy.
  • Distribution of profits and loses: These provisions should dictate the timing, type (capital v. profits) and amount of all allocations of profits and losses.
  • Members: These provisions should govern how and when members may withdraw or be admitted to the LLC. They should also address whether members may transfer their interests to trusts, family members or third parties and whether the other members will have a right of first refusal.
  • Disputes: These provisions should establish procedures to resolve deadlocks, such as mediation or arbitration, and forum selection if litigated. The terms of a buy-sell agreement should also be considered for inclusion.

If you have any questions about LLC operating agreements or would like assistance drafting one for your business, please contact me, Mark Follender, or the Scarinci Hollenbeck attorney with whom you work. 

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Corporate Transactions: Best Practices for Successful Deals post image

Corporate Transactions: Best Practices for Successful Deals

Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]

Author: Dan Brecher

Link to post with title - "Corporate Transactions: Best Practices for Successful Deals"
How to Conduct a Fair and Legal Employee Termination in 2025 post image

How to Conduct a Fair and Legal Employee Termination in 2025

Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]

Author: Angela A. Turiano

Link to post with title - "How to Conduct a Fair and Legal Employee Termination in 2025"
Admin Dissolution for Annual Report: What You Need to Know post image

Admin Dissolution for Annual Report: What You Need to Know

While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]

Author: Dan Brecher

Link to post with title - "Admin Dissolution for Annual Report: What You Need to Know"
What Is Antitrust Litigation Law? post image

What Is Antitrust Litigation Law?

Antitrust laws are designed to ensure that businesses compete fairly. There are three federal antitrust laws that businesses must navigate. These include the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. States also have their own antitrust regimes. These may vary from federal regulations. Understanding antitrust litigation helps businesses navigate these complex […]

Author: Robert E. Levy

Link to post with title - "What Is Antitrust Litigation Law?"
Dissolving Your Business: Essential Legal Steps to Protect Your Interests post image

Dissolving Your Business: Essential Legal Steps to Protect Your Interests

If you’re considering closing your business, it’s crucial to understand that simply shutting your doors does not end your legal obligations. Unless you formally dissolve your business, it continues to exist in the eyes of the law—leaving you exposed to ongoing liabilities such as taxes, compliance violations, and potential lawsuits. Dissolving a business can seem […]

Author: Christopher D. Warren

Link to post with title - "Dissolving Your Business: Essential Legal Steps to Protect Your Interests"
The Role of Corporate Restructuring in Mergers & Acquisitions post image

The Role of Corporate Restructuring in Mergers & Acquisitions

Contrary to what many people think, corporate restructuring isn’t all doom and gloom. Revamping a company’s organizational structure, corporate hierarchy, or operations procedures can help keep your business competitive. This is particularly true during challenging times. Corporate restructuring plays a critical role in modern business strategy. It helps companies adapt quickly to market changes. Following […]

Author: Dan Brecher

Link to post with title - "The Role of Corporate Restructuring in Mergers & Acquisitions"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form. By providing a telephone number and submitting this form you are consenting to be contacted by SMS text message. Message & data rates may apply. You can reply STOP to opt-out of further messaging.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!