A two-person LLC operating agreement is a crucial document that outlines the terms and conditions of how a limited liability company (LLC) will be managed and operated. It is a legally binding agreement that helps to protect the interests of both partners and ensures the smooth running of the business.
An LLC operating agreement typically covers several essential areas, including the members` rights and responsibilities, the allocation of profits and losses, the management and decision-making process, and the process for adding or removing members. Here are some key areas that you should include in your two-person LLC operating agreement:
1. Ownership Percentages
It is essential to establish each member`s ownership percentage, which will determine each member`s share of profits and losses. This can be based on each member`s initial investments or agreed upon in a different manner.
2. Distribution of Profits and Losses
The operating agreement should outline how profits and losses will be allocated among members. The simplest way is to allocate them based on each member`s ownership percentage. However, there are other options available, such as allocating them based on capital contributions or work performed.
3. Management and Decision-making
In a two-person LLC, both members typically participate in the management and decision-making process. However, it is important to set clear guidelines for making decisions, including voting procedures and what actions require unanimous agreement.
4. Adding or Removing Members
The operating agreement should also outline the process for adding new members or removing existing members. The process should include factors such as how new members will be admitted, how member interests can be transferred, and how members can be removed from the LLC.
The operating agreement should also outline how the LLC will be dissolved if required. This should include the process for winding up business affairs, settling liabilities, and distributing any remaining assets.
In conclusion, a well-drafted two-person LLC operating agreement is critical for protecting the interests of both partners and ensuring the smooth running of the business. By covering all essential areas, such as ownership percentages, distribution of profits and losses, management and decision-making, addition or removal of members, and dissolution, your LLC will be set up for success.