In Ohio, operating agreements are a functional and important part of setting up a multiple member limited liability company (“LLC”). They set forth the operations of the company as between its members, including the members’ rights and obligations to each other and the company, and the authority of its managers.
Under Ohio law, operating agreements are supposed to be prepared and signed at the commencement of the existence of the entity. Often times, the parties setting up the LLC fail to either prepare these documents or fail to execute them. Years later events may occur that require action that would have, and should have, been addressed in these agreements. It may be difficult, if not impossible, to complete them at such later time, for example when there is a member dispute. Operating agreements also provide an opportunity for estate planning for its members. If properly drafted, an operating agreement can transfer membership interests to a member’s designated beneficiary upon his/her death, thus avoiding probate court intervention for the transfer of a member’s interest, even if only for the purpose of selling that interest to another member or back to the company itself pursuant to the established buy-out provisions. While operating agreements are essential for multiple member LLCs, in a single member LLC, an operating agreement, or alternatively a written declaration of the operations and conduct of the LLC, should also be executed by the sole member.
The attorneys and paralegals at Thomas Law Group have years of experience in preparing operating agreements for our clients and advising them as to the benefits of such agreements. Please contact us if you have a question about either a new or an existing company and the inclusion of an operating agreement.