Step four in creating an Illinois LLC is the development of your operating agreement. This is the agreement that provides an outline of the ownership of your LLC, along with the operating procedures. It’s a legal document, and it’s binding on the business and the people it relates to. In essence, it ensures that every one of the owners of the business is on the same page when it comes to the purpose and direction of the LLC.
While the operating agreement doesn’t guarantee that everything will always be harmonious, it can help to reduce disputes and limit future conflicts. Decreased risk of conflict and other potential issues means a stronger and healthier company for the long term, which is a big benefit for any business trying to get started and develop success.
If you’re trying to create a multi-member LLC or a series LLC (where different company divisions operate like separate entities), it’s extremely important to create a strong operating agreement where everything is thoroughly covered. That gives you and any business partners a lot more peace of mind, and it also helps you legally work through any concerns or discrepancies you might have in the future. It’s a way to protect your company, your business partners, and yourself from misunderstandings.
Illinois doesn’t require an operating agreement for your LLC, so there aren’t any specific requirements about what should be included in one. But there are some general areas of information you can consider that make logical sense in this type of agreement. For example, consider including basic information on the overall organization. Who owns it, when it was created, and the names of all the members are important information. So is the ownership structure since it may be unequal by design.
You can also address management issues, any capital contributions, and the voting rights and responsibilities of the members in your operating agreement. If there are multiple owners, they generally all have a vote if there will be changes made to a business. Being clear on who’s managing the LLC and how everyone’s votes are handled makes it easier for you and other members of your company to avoid frustration and confusion, as well as conflict. Not all voting powers may be equal.
Another area you want to add to your operating agreement is what will happen if you want to make changes to the membership structure in the future, as well as how the company would or could be dissolved. Distributions are important, too. When distributions are given out, who receives them, and how they are given all matter. Are there any specific factors that could affect distributions? Put those into the operating agreement, as well.
