In the new Louisville Business First Legal Forum Column, BGD attorney Ross D. Cohen discussed operating agreements. Read his advice below and don’t miss our monthly Legal Forum Column in Louisville Business First.
I am a member of an LLC and its Operating Agreement seems unnecessarily complex. How can I be sure this Agreement is consistent with the deal I have with the other members?
A multi-member LLC should have a written agreement that establishes and governs the members’ rights and obligations involving all aspects of their ownership and involvement with the LLC. Having a comprehensive agreement in place at the outset helps prevent future disagreements since the preparation and review process ensures everyone involved is on the same page.
Several long sections addressing federal partnership tax rules often contribute to the complexity of these agreements. The tax-related provisions of the agreement are generally needed in order to ensure that each member is allocated its proper share of income or loss in terms of both relative economic rights to distributions and certain required allocations under the federal tax regulations.
Operating agreements are complicated because they cover a wide range of matters (and potential sources of disagreement) in a single document; review or preparation by an attorney familiar with operating agreements and related tax issues can make sure it captures the overall results you had in mind.