What is an LLC Operating Agreement?

First things first: What is an operating agreement?

Simply put, this document outlines the rules and responsibilities of everyone at the company. It details such important details as who does what, who owns how much of the company, how profits get distributed, how members vote on important decisions, and what happens when the company gets transferred to new ownership (if that happens).

An operating agreement is a legally binding contract, so creating one simultaneously creates an extra layer of protection for your business. This helps ensure that the good intentions that exist at the beginning, when you first set up your LLC, and carries through to the end.

Operating agreements are highly beneficial for single-member LLCs, but they’re straight-up mission-critical for multi-member companies. Let’s take a closer look at why.

Why is an Operating Agreement Important for Georgia LLCs?

The sad reality is that most business partnerships fail. However delighted you might be by your new venture, chances are it won’t work out if you don’t take careful action to prevent the misunderstanding, miscommunication, and misdirection that often go along with plain old human emotions.

An operating agreement can help forestall those issues. Beyond simply trying to get out in front of trouble, there are a number of other reasons to put an operating agreement in place for your Georgia LLC. The key benefits include:

• Clear rules about financial decision-making: The operating agreement clearly explains who gets to make financial decisions, when, and with how much input from other sources.
• Protection for yourself and other members: Operating agreements also limit your connection to the LLC further, which can help keep your assets separate in a financial crisis or legal snafu.
• Operational framework: It’s right in the name that operating agreements will help clarify how you operate, helping all members understand their roles, powers, and limits.
• Guidance for future decisions: As your company grows, you will appreciate a set of guidelines regarding how to make big financial or other decisions.
• Intellectual property protection: Operating agreements for Georgia LLCs often include documentation on trade secrets, nondisclosure agreements, and non-competes, which will help keep your goods or services safe down the road.
• Reputation: An operating agreement makes you look more serious and scrupulous, which may prove important when trying to get loans.

Keep in mind that, because LLC operating agreements aren’t legally required in Georgia, you will not get prompted by the state to create one. If you do not tackle it yourself, you may remain without the protection you need down the road.

The truth is, you might feel you have everything handled right now, while you’re launching your business. And indeed, you might.

But ideally, businesses grow. (That’s your goal, right?) If the one you’re starting takes off, you want to make sure you’ve already got guardrails in place that will safeguard your time, your resources, and your rights.

Key Components of a Georgia LLC Operating Agreement

So, what exactly do you need to include in an operating agreement? Essentially, sections include, but aren’t limited to:

Ownership structure

Georgia LLC operating agreements should always specify who owns the LLC and what their ownership percentages are. In the absence of clearly laid-out expectations, you can face a legal battle in which someone claims more of a stake than they have earned or was agreed upon verbally.

Management structure

How the LLC is managed is another important aspect of an operating agreement. Is it managed by all the members of the LLC? Or is there a specifically appointed manager?

Member roles and responsibilities

However the Georgia LLC is managed overall, what are the roles and responsibilities of everyone else in the LLC? What duties and obligations does everyone have?

Voting rights and decision-making

On the flip side of the coin from duties, what rights do the members of your LLC have? How does voting happen? How do you make big decisions? What kinds of decisions are covered by voting?

Profit and loss distribution

Georgia operating agreements should include information on how you’ll distribute both profits and losses. The need to determine how profits get parceled out is obvious. Less obvious is the need to determine how you’ll divide losses, which has tax implications for all concerned.

Transfer of ownership, buyout, and dissolution terms

Last but certainly not least, you must dictate how you will make major ownership changes in the future. If you want to sell the company to someone else, buy out some or all members of the LLC, or dissolve it, what will that look like?

Each of these major components of your operating agreement is critical, and you should address them individually. But you also need to know-how to create the whole.

How to Create an LLC Operating Agreement in Georgia

Keep in mind that if you don’t know how to create an operating agreement on your own, it’s okay to get some professional help. Before you can decide whether you need it, though, it’s helpful to understand how you create an operating agreement for your Georgia LLC in the first place.

Here’s the basic rundown on how to do it:

1. Create a document.
2. Include your business name, address, and purpose at the top.
3. Include the names of all members along with how much they’ve put toward the LLC and how much of the company they own as a result.
4. Decide on your management structure, roles and responsibilities, and approach to decision-making.
5. List out the breakdown for the distribution of profits and losses to all members.
6. Determine how you’ll resolve disputes, membership changes, and dissolution of the company.
7. Strengthen the limits on liability of your LLC by further separating yourself and other members from the business entity.

If you want to further strengthen the agreement, you should have all members sign it. Doing so in the presence of a notary is even better, as it further legitimizes the process and proves that all members were on board at the time of signing. While trust might be high at the outset of your exciting new company, it doesn’t always remain that way.

As you can see, drafting your own operating agreement will require a good bit of legal know how, so make sure you have someone at your side who understands what they’re doing. That way, you can make the document as strong as possible—which, as you will see in the next section, really matters in Georgia.

Not sure how to proceed? We recommend consulting a legal professional as soon as possible to put your operating agreement in place.

Georgia-Specific Considerations

For the most part, because Georgia operating agreements are not required, there aren’t any specific considerations to take into account.

However, Georgia’s approach to LLCs rests on one very important foundational idea, known as “maximum effect.” Essentially, this means the state will do everything in its power to respect what you put into your operating agreement, and the factors you lay out will weigh as heavily as possible into legal proceedings.

Thus, it is absolutely in your interest to draft as strong an operating agreement as possible. Assuming nothing goes wrong, it’s still a useful document to keep on record to guide future decision-making.

Final Thoughts & Next Steps

If you have not yet considered the role a Georgia LLC operating agreement may play in your business, now or in future, it’s time to do so. You can either create your own or get help.

Decided on the latter? Good choice. Tailor Brands can help you with how to set up an LLC in Georgia
and get out in front of trouble before it comes your way. All you have to do is get in touch with our team today.

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