Why do I need an operating agreement for my Arizona limited liability company?

Why do I need an operating agreement for my Arizona limited liability company?

An Operating Agreement is crucial if a limited liability company is owned by more than one member.  A good Operating Agreement will typically address, but not be limited to, the following types of issues:

(1) naming all members and the percentage of the company owned by each member;

(2) stating the rules for distributions of profits and losses;

(3) detailing the roles and responsibilities of the members and/or manager(s);

(4) creating voting methods and approval processes for major company decisions; and

(5) restricting members from selling, encumbering or transferring their interests in the company.  Even if you are a single member Arizona limited liability company, creating an Operating Agreement, while not required, is highly recommended as it shows the world that the members are separate and distinct from the entity.

The best time for adopting an Operating Agreement is when the company is first formed.  Disputes, which will inevitably arise in any company can be avoided (or mitigated) with a good Operating Agreement.  Moreover, if the members of an Arizona limited liability company do not adopt a written Operating Agreement, their rights and obligations with respect to each other and the company will be as provided by the default provisions of Arizona law, which can have adverse and unintended consequences.  If you need assistance with drafting or reviewing an Operating Agreement, contact the attorneys at Fleming & Monroe, PLC for a free consultation. #fmlawazlegaltips