An operating agreement sets out the roles and responsibilities of each limited liability company member (LLC) member. This includes how much money each partner contributes to the venture, what duties each person has, and whether partners are liable for debts incurred by the company. An operating agreement also outlines the terms under which the company operates. For example, it might specify where the office space is located, how long meetings must be held, and how many board members there must be.
A well-written operating agreement protects your company from lawsuits and other liabilities and ensures that everyone understands his or her role in the company.
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What Is an Operating Agreement for a Virginia LLC?
An operating agreement is required for every LLC. You must file it with the state where your LLC operates. This document covers many aspects of running an entity. For example, it specifies what happens if someone wants to dissolve the company. You’ll probably want to consider getting one if you don’t have one. Here’s why.
There are two main types of operating agreements: Member-Managed and Manager-Managed. In a member-managed LLC, each member owns equal shares in the company. Each member has a vote on major decisions. In a manager-managed LLC, there is just one person who manages the company’s day-to-day operations. He or she makes all important decisions about the company.
Virginia requires both types of operating agreements. However, some states require only one or the other. So, make sure you know what you’re signing up for.
The operating agreement is part of the Articles of Organization. These documents specify everything about your LLC, including the company’s name, address, and purpose. They include information about members, managers, and directors.
You’ll also find provisions for capital contributions, distributions, dissolutions, and much more.
If you decide to start a business, you’ll likely use an attorney to draft your operating agreement. But, do yourself a favor and check out our article on starting a business. We’ve got lots of tips and resources for you.
What Does a Virginia LLC Operating Agreement Contain?
Virginia LLCs are often used to form businesses where there are multiple owners. These entities are called “single member limited liability companies,” or SMLLCs. They’re easy to set up and manage, but without an operating agreement, they aren’t protected against lawsuits or bankruptcy.
An operating agreement protects against lawsuits and bankruptcy. To avoid problems down the road, it’s important to consider what protections you’ll need.
1. Your LLC is legally yours, as shown by your operating agreement.
LLCs are great ways to start businesses, especially because it allows you to protect your intellectual property. But there are some things you should know about operating agreements before signing one. Here are three things to consider.
#1: Your operating agreement shows who actually owns what percentage of an entity. In most cases, the operating agreement is the document that lists the members of the LLC. This document tells people how much ownership each person has in the LLC. For example, if you’re part owner of a restaurant called “The Cheesecake Factory,” your operating agreement might say, “John Doe owns 50% of the membership interest in The Cheesecake Factory.” If someone else wants to buy into the restaurant, he or she must pay John Doe $100,000 to purchase half of the ownership stake.
#2: You don’t need to include every member’s name in the articles of organization. While it’s true that you must file articles of organization with the state, you do not need to list everyone who is a member of the LLC. Instead, you just need to file articles of organization that show who owns what percentage of the LLC.
#3: An operating agreement is important for opening a business bank account. When you open a business bank account, you’ll need to fill out forms that ask questions such as: Who owns the LLC? What percentage does each member own? How many shares are owned by each member? These are the types of questions that require an operating agreement.
Limited liability companies are often confused with partnerships because both offer similar benefits. But there are some key differences between the 2 types of entities. Limited liability companies (LLCs) are considered “pass-through businesses,” meaning profits pass directly to shareholders rather than being taxed twice — once at the corporate level and again at individual levels. This makes it easier for investors to deduct taxes on their income. Partnerships, however, are treated as corporations under the IRS code. Therefore, profits flow through partners’ personal tax accounts, making it harder for investors to claim deductions.
An operating agreement helps keep your LLC separate from its owners. In addition to setting out how ownership interests are divided among members, an operating agreement describes what happens if one member wants to sell his interest in the company, changes the number of shares outstanding, or dissolves the company altogether. These documents usually include provisions regarding the management of the company, such as how decisions are made and how much control each owner has over the company. They also typically outline procedures for winding up the company, including how assets are distributed and debts paid off.
3. Misunderstandings can be avoided with the use of an operating agreement.
Virginia law says that a limited liability company is bound to its operating agreement, meaning that members are obligated to follow its rules and procedures. This includes how decisions are made and what actions must be taken. If there is ever an argument over a decision, the operating agreement sets forth the process for making one. In addition, it tells you what happens if someone doesn’t agree with a decision.
4. The default laws of Virginia may be overridden by an operating agreement.
Virginia LLCs are required to file an operating agreement within 30 days of formation. If you don’t do it, then the state will assume certain rules apply. These include the following:
• A member must act in good faith toward the limited liability company;
• A member may not transfer his or her membership interest unless the transferee assumes the obligations of the limited liability company; and
• Unless otherwise agreed upon, the members shall elect one person to serve as manager.
The problem is that Virginia’s defaults may not work for your company. For example, if you’re doing real estate investing, you may want to allow multiple managers. Or maybe you want to protect yourself against lawsuits. In those cases, you’ll need to adopt an operating agreement.
Forming an LLC in Virginia
The process for forming an LLC in Virginia is pretty straightforward. First, you choose a name for the LLC. Then you apply with the Virginia Commonwealth Corporation (VCC). In most cases, once approved, the VCC issues a certificate of formation for your LLC. If you want to change the name of your LLC, you can do it within 30 days of receiving the original certificate of formation. But first, you’ll have to pay another $10 filing fee.
Other LLC Formation Tasks
Once you’ve filed your LLC registration, you’ll need to prepare your operating agreements. You should also get an EIN, even though you won’t be hiring anyone right away. This is used for tax purposes, and is usually required before opening a bank account. There is a $100 fee, and you can fill out the forms online. Depending on what type of company you’re setting up and where you live, there may be additional licensing requirements. For example, if your company is a consultant, you might need a general license, sales tax permit, and professional services contracting license.
You can get help with legal issues related to operating agreements by asking questions on UpCounsel’s marketplace.
Frequently Asked Questions
Why do I need an LLC Operating Agreement in Virginia?
An operating agreement is one of those things that most people don’t think about until they actually need one. But having an operating agreement isn’t just something you do because someone told you to do it; it’s something you do because it protects your business and helps keep it running smoothly.
You’d want to have an operating agreement to protect your business’s limited liability. While LLCs are supposed to provide some level of protection from lawsuits, there are limits to that protection. For example, if you’re sued for $100,000, you could potentially lose everything you’ve worked hard to build. However, if you’re sued under an LLC, the maximum amount you would owe is typically much lower. This is why having an operating agreement is so critical—it gives you the opportunity to specify exactly what type of liabilities you’ll take on and what types of debts you won’t allow yourself to incur.
Another benefit to having an operating agreement is that it can give you greater control over the day-to-day operations of your business. You can decide whether certain employees have authority to sign contracts on behalf of the company, for instance, or determine how often members must meet.
Finally, having an operating agreement can help clarify the differences between personal and business assets. If you’re thinking about starting a side hustle, you’ll likely want to keep your home separate from the money you earn from your online store. In addition, you’ll probably want to keep your personal bank account separate from the funds you use for your business. Having an operating agreement can help you understand what each asset belongs to and what happens to each asset in the case of a dispute.
What do I include in my Virginia LLC Operating Agreement?
When starting a business, it’s essential to understand how your entity works. You have to know whether you are operating solely as an individual or whether you intend to form a limited liability company (LLC). This is especially true if you plan to raise capital from investors. If you operate as an individual, you must file Articles of Organization with the state government. If you operate as a corporation, you must register with the Secretary of State.
The Virginia Limited Liability Company Act requires every person forming a limited liability company to prepare an Operating Agreement. The document outlines the ownership structure of the company, management responsibilities, and the roles each member plays within the company. In addition, the Operating Agreement contains information about the company’s name, address, and contact information.
Here are some of the most common things you might want to include in your Virginia Operating Agreement.
1. Business Purpose
Your purpose statement tells potential investors why you formed the company. It helps them understand how the company operates and what makes it unique. For example, you could write something like: “We provide marketing solutions for small businesses.” Or, “Our products help people save money.” Whatever you choose, keep it short and simple.
2. Members’ Rights and Responsibilities
This section covers the rights and responsibilities of the members of your company. You’ll want to outline the duties of each owner and manager. For example, you might say that one owner will serve as CEO, another will serve as President, and the third will serve as Treasurer. Each member will manage his or her role according to the requirements set forth in the Operating Agreement.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.
