This Sample Operating Agreement incorporates many of the asset protection concepts presented throughout the Business Owner's Toolkit. It provides for the issuance of voting capital and allows for the issuance of nonvoting capital. Using nonvoting capital can be a major component in a popular estate planning, and thus asset protection, strategy: the family limited liability company (LLC). The Sample Agreement provides that members who hold only nonvoting capital have no right to vote as members or to participate as managers. This eliminates control issues involving junior family members, and also should increase the estate tax savings that result from discounting of the other family member's interests.
The Sample Agreement provides that the voting members also manage the LLC. This eliminates questions of authority between members and managers, and the potential that transactions may be authorized by the wrong group, and thus unauthorized. The Sample Agreement does not provide for regular meetings, but instead allows the voting members to act informally in managing the business.
Flexibility is built into the document elsewhere. For example, the Sample Agreement allows for the voting members to appoint officers to manage the business, but allows the voting members to control these issues outside of the agreement. This arrangement also means that the LLC can be managed in a more dynamic way, without the need to continually amend the operating agreement. All of these strategies also should significantly reduce the potential for a piercing of the veil of limited liability.
The Sample Agreement also provides for mediation and arbitration of disputes, and for reimbursement of attorney's fees and related costs to the prevailing party, as ways of controlling the court system. The Sample Agreement also incorporates buy/sell provisions, which control a member's resignation, retirement or transfer of an interest. A member may voluntarily withdraw, but only after one year. This provision achieves security for the business. During the second year, only book value is paid to the withdrawing member. This strategy eliminates the costs and potential disputes associated with determining fair market value of an interest.
Finally, of course, this Sample Agreement is based on one of the most effective, and basic, asset protection strategies, one in which the owners can achieve protection of their personal assets from the claims of the business's creditors, and protection of their business entity's assets from the claims of their personal creditors (i.e., the formation of an LLC through which the business will be operated).
The file contains a 16-page document in rich text format (RTF) that is suitable for use with most word processing programs used in the Windows environment.
The sample operating agreement includes sections on the following:
- organization, membership interests, capital accounts and management
- identification of the officers and agents of the company, and how meetings and votes are conducted
- allocations and distributions of profits and losses
- transfers or assignments of interests
- accounting and recordkeeping
- dissolution and closing down operations
- exculpation and indemnification
- mediation and arbitration of disputes
Establishing the Business Entity