LLC Agreements: Important Purposes for Them

When your LLC starts to conduct business with other parties, it will not be long before there will be a requirement to review the operating agreement. If you do not have an updated and completed agreement in place, you run the risk of delaying your business or losing customers, suppliers or other potential business partners.

Here are some of the popular scenarios involving the need to produce LLC Agreements for business:

Member Identity

LLC Agreements establish the ownership of the business by evidencing who the members are. While ownership of a small business LLC is a private matter and not disclosed with the state, sometimes a business partner or supplier may have a legitimate need to see proof of ownership. It is important to always keep your member information up to date. This includes name, address and specific ownership details.

Proof of Contributions

Ownership of a limited liability company is often granted in exchange for cash, property or services. The operating agreement provides evidence of what has been exchanged for the issuance of membership interests.

In financial and strategic business activity or for accounting and tax purposes, there may be a need for other parties to see evidence of what was contributed to the business in exchange for ownership units.

Who Has LLC Authority

Another important purpose of the LLC agreement is to establish management authority and rules for who has that authority and what they can and cannot do. A third party will want to see proof that the person they are working with has the real authority to bind the LLC.

Power and Authority for LLC to Enter into a Transaction

Most business arrangements will be reduced to a legal contract that needs to be signed by the LLC. LLC Agreements will set forth what requirements must be met before an LLC can enter into a major transaction. Third parties may want to see these rules and processes and evidence that they were completed prior to entering into the contract with the limited liability company.

The LLC agreement sets forth how the business becomes authorized to make business decisions and take action. In addition to determining who has authority on behalf of the LLC, the agreement should also have provisions that set forth what specific steps must happen for authority to be obtained.

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