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What flaws could damage your LLC operating agreement?

On Behalf of | Aug 9, 2023 | Business Planning

Your new LLC could be a profitable business for years to come, provided that events do not cause the company to fall apart. Sometimes problems arise because founders of an LLC create an operating agreement with serious defects.

In the drafting stages of an operating agreement, it may benefit your business for the long term if you are aware of possible areas where your document could suffer.

Lack of clarity

Your operating agreement should be clear in its provisions. In some instances, LLC founders make parts of an agreement ambiguous so that they can be more flexible in their actions. However, unclear language can also create loopholes that members might use to the detriment of other members and the company.

Skipped sections

It is important for an operating agreement to address all necessary issues. Leaving a part of an agreement blank means your company does not have an established procedure to handle one or more issues.

For instance, your agreement should plan for the departure of members and the transfer of their ownership. Without it, you may have no legal way to force out a member or restrict the sale of their membership.

No updates to the agreement

Writing an operating agreement does not mean you are setting it in stone. At some point, you and your members will probably have to revisit the agreement, especially if years pass. An agreement that does not account for changes that affect how your business operates could run the risk of becoming obsolete.

A good operating agreement should protect the interests of all the members, but members should also innovate the agreement to account for new circumstances.