You’ve got yourself a shiny new LLC and you’re working on your Operating Agreement… wait, what the heck is an “Operating Agreement”? Great question! It’s the document that acts as the high level partnership agreement between you and any of the other LLC owners.
Cool, right? Well, it would be cooler if it wasn’t so legalese-y for sure. But here’s a pro tip on why that legal gobbledygook is in there: the Operating Agreement will mostly be used only by your attorneys or CPAs, not as a day-to-day operating manual.
So, why do you need it? Dang, you’re full of great questions today. Here’s when you will need your Operating Agreement and who should help you with it at that time:
When You Only Need Your CPA; No Need For a Lawyer!
Your CPA will determine what your Operating Agreement dictates for procedure. You only need a CPA when:
- You want to confirm how much the owners should be receiving out of the LLC profits → Your CPA will also determine what the best way is to distribute those profits. Note: the ownership percentages should be listed on one of the “Exhibits”.
- You need to make distributions to owners to cover their taxes → Your CPA will also determine what the tax payments are.
When You Need Your Lawyer First, CPA Second!
Hit up your lawyer to determine the procedure laid out by your Operating Agreement. Then, contact your CPA to determine if there are any tax consequences. You’ll tag-team when:
- You or another owner wants to sell ownership of the LLC
- One of the owners becomes disabled or dies
- Deciding how to close/dissolve the company
- The LLC needs to make a large financial purchase or take on debt
- You want to add a new owner
- You want to remove an owner
When You Only Need Your Lawyer; No Need For a CPA!
Your lawyer will determine the procedure laid out by your Operating Agreement and/or the type of dispute resolution laid out. You only need your lawyer when:
- The owners get in a fight and cannot agree
…And that’s all we got here!
Wrapping It Up
These certainly aren’t exhaustive of the situations that can arise in relation to your Operating Agreement, but these are the most common. Keep in mind that our goal is to explain all of this to you in a way that helps you understand it and possibly not need to hit up the lawyer. But, that said, we believe in money spent to do things right is money well spent, so maybe hit up that lawyer (or CPA) when something comes up, just to be sure.
By: Sam Mazzeo – 08/20/18
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