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Utah Operating Agreements

How to Start an LLC

Forming an LLC comes with important functional and structural choices. Being a single member LLC owner is simple enough, since changing your mind doesn’t involve convincing or informing anyone else involved. That can become problematic if your LLC suddenly has more members. Decisions like who oversees what, how to resolve a dispute, whether the company should be member-managed, manager-managed, and who manages what, can be resolved just by writing an operating agreement. This process not only involves understanding the requirements and benefits but also considering the fees associated with setting up and maintaining the LLC, the taxes it will be subject to, and how to ensure asset protection. Additionally, the option to form an anonymous LLC offers privacy and protection for business owners.

What is an Operating Agreement?

An operating agreement is a written legal record that contains outlines for financial and functional decisions on how operations are implemented within a company. It serves as a governing tool that is adjustable to the needs of the company. Once signed or agreed to by all business members (including a sole member), it becomes a legal contract binding all who signed it to the terms contained within. An operating agreement is part of any business entity, no matter how many members or owners there are.

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Why Do You Need an Operating Agreement?

The primary reason to have an operating agreement for an LLC in Utah, is because state law (Utah code Section 48-3a-102(16)) requires it. Written down, it serves as a physical form of potential oral discussions or an implied consensus between members, managers, and owners of a company. It contains detailed outlines for handling internal disputes, methods on how to conduct business, and instructions for shifting the responsibilities of business leaders. This is why even if the state doesn’t require one, it’s recommended to have some kind of written document to clarify the inner-workings of a company. Having a tangible copy of an operating agreement serves many additional purposes:

Protect Your Limited Liability Status

Different members might bring different assets to the table in order to initiate business practices. A written declaration on who owns which assets can help establish your limited liability status, and protect your personal property. Without a clearly defined list of assets and their usages within the company, your LLC might resemble a sole proprietorship or partnership, putting your personal assets at risk.

Establish Percentage of Ownership

Combining the assets of several individuals can bring complications when determining who owns what percentage of an LLC. Laying out the details ahead of time on what each member provides can proactively address future conflicts by having it defined on paper. It will also separate owners from having to pay for the mistakes of other investors or members. If one member loses a lawsuit and must pay reparations to an individual, only their personal assets are at risk, so long as they are clearly defined.

Override State Default Rules

Without an operating agreement in place, resolving conflicts and issues default to using a base set of rules determined by Utah state law. These rules can be overly generalized, and might fail to protect and separate business assets. You can override these rules and follow a predetermined set of guidelines that are designed specifically for your company.

Proof of Ownership

Anonymity can be a great thing to have when owning a business. However, it does limit the documents that can be used to provide proof of ownership. A detailed operating agreement can serve this purpose even if you intend to limit what personal information you want to share with the state.

Information to Include in an Operating Agreement

We provide an operating agreement suited to your company when you form an LLC through us. Because no two businesses are exactly the same, so too must every written agreement be adjustable to the needs of the LLC’s owners. Despite the minor contrasts, there are specific details that should be included in every document:

Manager or Member-Managed

The question on whether your new LLC will be member-managed or manager-managed should be decided before you submit your company’s Certificate of Organization. Including the decision that works best for your company within your operating agreement helps to make clear what is expected when this choice is made.

Profit Distributions

The fewer the owners involved with your company, the easier it is to manage profit distribution information. In any case, you will want to designate the expected profits for each member based on what they bring to the business, or what their role in management is. The more members involved, the more crucial these details become.

Responsibilities

Appointing the responsibilities of each member establishes who is in charge of what. Knowing the domains of each owner can also separate which business assets are used and by whom. Defining these borders is key to setting up structural integrity with a business.

Procedures for Transfer of Interest

Transfering the duties expected of owners or leaders is possible, and something that should also be in writing. People can change their minds, and having a process in place to do so might encourage more people to invest.

How to Add or Remove Members

If members decide to leave, or if new members show interest in joining your LLC, you will want to have a process in place to make these things happen.

Dissolving the Business

A business entity can be dissolved in many different ways. One way is to fall out of good standing and lose the privileges provided by the state. Most states allow you to dissolve your own business by filing the correct forms. It’s a good idea to include your own methods to ending your business practice.

How to Create an LLC Operating Agreement

An operating agreement will need to contain many of the same details involved with filing a Certificate of Organization to ensure it applies to your business and the people involved. To formalize this document, every member must be involved with, or at least agree to, what’s contained within:

Identifying Information

Your LLC’s name and the address and name of your company’s registered agent should be included.

Owners

All of the owners and members involved with forming the business must also include a personal signature.

Management Structure

Reiterate what each member provides the LLC and their areas of charge. In the event of a conflict within the company, have a plan on how to resolve these issues.

Business Purpose

Include the reason and nature of your business operations and what your company plans to accomplish. Including an open-ended purpose can leave a possibility to adjust or expand your purpose later, should the need arise.

Business Duration

If you have a goal in mind, have an estimation on how long you think your LLC will need to accomplish it. You can declare an indefinite timeline if you think it will persist or go beyond your expected duration.

How a Business Lawyer Can Help Write an Operating Agreement

A business lawyer can properly construct an operating agreement that suits the needs of your company. Having a law expert on your side to write up a proper agreement will ensure that you have the details you need to start an LLC. Form a business with us and we can give you the legal documents you need.