What is an LLC Operating Agreement?

An LLC operating agreement is a legally binding document commonly used by LLC owns (referred to as members). The operating agreement documents the basic information related to your LLC along with the complexities of both day-to-day operations and strategic decisions.

The business operating agreement details the ownership stakes and capital contributions of each member along with the role each plays in the LLC’s management. It outlines the voting process and percentages and what happens to resolve disputes. Financially, it outlays the ways that profits and losses are distributed to the members.

If the LLC ceases to exist, the operating agreement lays out the conditions under which a dissolution occurs and what happens to wind down the company.

The LLC operating agreement has several core functions. First, it provides protection to the members should disagreements occur. It also provides clarity when there is a dispute about a decision or operating procedure.

Why is an Operating Agreement Important for Kansas LLCs?

There are many important reasons why creating a operating agreement when forming an LLC in Kansas makes sense, including the following.

Clarity for all involved

The primary purpose of an LLC operating agreement is to give all parties the definitive guidelines for running your company. The LLC operating agreement provides written documentation that provides definitive explanations for how decisions are made and who is responsible for which aspects of the company’s success.

Without this clarity, company members can spend time and money resolving conflicts as they arise.

Credibility with third parties

Your business success likely depends on having robust working relationships with partners, vendors and financial institutions. By having a Kansas LLC operating agreement in place, you show these third parties how seriously you take your work and commitment to professionalism. The operating agreement documents decision-making and finances that may be a requirement for doing business with banks or other lenders.

Liability protection

An LLC is the business structure of choice for many entrepreneurs largely due to the liability protection it offers to members. In an LLC, owners’ personal assets are generally protected in case there’s a court judgement against the company.

Having an operating agreement provides further protection, framing the operations clearly and providing an additional layer of liability defense, especially for single-member LLCs.

Growth mindset

When you want to expand your LLC, especially by bringing on new members, the operating agreement helps accelerate growth. By having the key stipulations and structure detailed, you can bring on new members and assets quickly.

Dispute resolution

When disagreements arise, the LLC operating agreement can help resolve them quickly, with determined courses of action for votes, responsibilities and obligations.

Key Components of a Kansas LLC Operating Agreement

There is no set structure for a Kansas LLC operating agreement. However, below are the standard sections in most documents.

Basic information

This section lists the name as registered with the Kansas Secretary of State and the effective date of the LLC. It may also include a description or purpose of the business.

Ownership structure

This section details the names and addresses of each owner and the ownership percentage and capital commitments each has in the LLC.

Member roles and responsibilities

The roles and responsibilities for running your business require details that determine both how day-to-day tasks are distributed and how major decisions are made.

Voting rights and decision-making

Each member will be assigned voting rights in the enterprise, typically weighted based on their ownership shares. This section indicates the voting rights of each member.

Here is where many operating agreements also explicitly state what decisions cannot be made by an individual owner or require a unanimous vote. Such matters typically include taking out mortgages or loans, making major purchases or forming partnerships with other businesses.

Profit and loss distribution

When the company has to distribute profits and losses, it’s important to have the distributions in writing. This section indicates who receives or is responsible for what.

Usually, the profit distributions come after other obligations are paid, including mortgages and loan obligations and cash reserve payments.

Dissolution terms

In some cases, events such as the death or disability of a key member can trigger a dissolution of the LLC. The operating agreement can set those parameters and the steps that are taken to wind down the company.

How to Create an LLC Operating Agreement in Kansas

The first step to creating your operating agreement is to determine the sections to include. You and other members will need to come to agreement as to the distributions, responsibilities, commitments and other procedures to be included in the operating agreement.

At this step, it is often wise to consult a legal professional.

Kansas-Specific Considerations

There are Kansas laws governing LLC operating agreements but there is no requirement to have an LLC operating agreement or to file it with the state.

Final Thoughts & Next Steps

Having an LLC is an important, fundamental document that frames key elements of how your company will operate. Clarity, dispute resolution, credibility and ease of growth are all major outcomes of having an agreement in place.

If you’re ready to start building your LLC operating agreement, an excellent step is to contact Tailor Brands. The company has extensive expertise in creating Kansas LLC operating agreements and providing other core business services.

Learn more about how Tailor Brands LLC formation services can help you today.

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