Why Your North Carolina Startup LLC Needs an Operating Agreement
When starting up a new business in North Carolina, one of the first, most important decisions stakeholders make is the type of structure for purposes of organization. In recent years, the Limited Liability Company (LLC) has increasingly become one of the most popular choices among people in your position. An article published by financial experts at Forbes outlines the benefits of going with an LLC, including protection of personal assets and flexible tax treatment. Another key feature is that it is relatively easy to set up an LLC, since there is no requirement to execute an operating agreement and related formation paperwork.
However, this seemingly advantageous factor can create massive headaches later. You are not laying a proper foundation for the future of your company when you do the minimum for purposes of compliance. An operating agreement is essential for numerous reasons, and it helps you avoid risks throughout the lifecycle of your company. A North Carolina business law attorney can describe the relevant issues in more detail, but a few of the benefits include:
Customize Your Business Structure: The North Carolina Secretary of State outlines the requirements to organize an LLC but, beyond the basics like the name, address and registered agent, you have a great amount of flexibility in structuring your business. You can include provisions on:
- How meetings are called and conducted;
- Who will be in charge of managing the LLC;
- The specific roles and responsibilities of different stakeholders;
- Details on contributions for members and managers;
- Allocation of profits and losses; and,
- Many other factors.
Avoid Disputes Among Stakeholders: When you have no structure in place through an operating agreement, it is easy for conflicts to arise among LLC members and managers. There are no specifics regarding roles and obligations, leading to finger-pointing, stepping on each other’s toes, and related disputes. An operating agreement spells out the duties of stakeholders, and it can be as specific as necessary to suit your LLC needs.
While you are not required to execute an operating agreement or file it with the Secretary of State, the document IS enforceable in court to resolve disputes: North Carolina law specifically states that courts have jurisdiction to enforce the operating agreement, determine the rights and duties of stakeholders, and deal with other LLC internal affairs.
Bolster Your Limited Liability Status: You can protect your personal interests by creating an LLC, but creating an operating agreement reinforces the separation between the individuals and the company. This is especially important in a one-person LLC, where the lack of typical formalities might lead to the assumption that your organization is a sole proprietorship. When you do not have an operating agreement in place, creditors may come for your personal assets.
Outline Succession Planning: Running your company today also means looking toward the future, so you should focus on cultivating and developing the leaders that will take over your LLC. Succession planning enables a smooth transition when key stakeholders retire, pass away, or want to withdraw from the LLC. By including proper language in your operating agreement, you can effect a smooth transition when that time comes. Plus, you can also provide for restrictions on shares so there are limitations on transfers by stakeholders.
Contact Our North Carolina Business Law Attorneys for Operating Agreement Details
If you are a current stakeholder or starting up a new LLC, you can count on our team at Mullen Holland & Cooper P.A. to assist with developing an operating agreement. We represent clients throughout Western North Carolina and Upstate South Carolina, and we are happy to offer customized advice on crucial organizational tasks. Please call 704.864.6751 or go online to schedule a consultation at our Gastonia, NC offices today.