An operating agreement is a document that outlines member responsibilities and duties. It covers the handling of finances, establishes who’s responsible for making operating decisions, lays out rules, and codifies any other duties that need to be done as part of the LLC’s operation.
The operating agreement becomes binding once all members of the LLC sign their names. That is, if a member fails to perform their duties as outlined in the operating agreement or disagrees with other members at some point in the future, the operating agreement can be used to hold the member responsible. The operating agreement is a contract that’s enforceable in court if need be.
The state of Iowa does not require LLCs to create and maintain an operating agreement. However, it’s a good idea to have one, since it can be referred to in case there’s a disagreement among the members as to ownership and their responsibilities, prevents financial peccadilloes, and provides operating rules for all members to abide by. It also makes verbal agreements clear and concise, and avoids a “he said, she said” situation in the future.
If you’re not sure about what you need to put into an operating agreement, contact a lawyer for help with drawing one up. A lawyer can help you create an operating agreement that clearly outlines the responsibilities and duties of the members and apportion shares of ownership.
However, it’s recommended to include items such as: