Five matters your operating agreement must address

When drafting your operating agreement, you must ensure it adequately addresses these five essential matters. Failing to do so puts you and your company at risk.

Identify all LLC members.

Identity each member, listing their name, current address, initial contribution, ownership interest, role, and the date they became a member.

Specify what each LLC member contributes.

Specify the cash, property, and services each member contributes to the company in exchange for their membership interest.

Specify whether additional contributions are required.

Specify whether a member needs to make additional contributions to the company, under what circumstances, and under what terms.

You need to ensure the LLC is sufficiently capitalized and provide the means to enforce a member's obligation to the company legally.

Identify all LLC managers.

Identify who has the authority to manage and run the business and include the managers' rights and responsibilities.

Specify who can bind the LLC.

Third parties wanting to do business with you must know that the transaction they enter is authorized. Thus, the operating agreement must specify who can sign on behalf of the company.