Why LLC Operating Agreements Protect You and Your Business

By Joshua J. Butera August 19, 2020Business

Forming a limited liability company, or “LLC,” does not require an attorney. Articles of organization are filed with the Secretary of State and the LLC is then created; no attorney necessary. However, while registration with the Secretary of State is all that is necessary before an LLC can legally operate, in reality, no LLC should be without an operating agreement drafted by an attorney. An operating agreement dictates how the LLC will be governed and provides the terms of the relationship among the governing members. Crucially, the operating agreement also names the owners, their respective percent of ownership and how much they each contribute to start the LLC.

Admittedly, at the start of a new business, the business owners are looking for every avenue to save costs. Hiring an attorney to draft an operating agreement may seem like an unnecessary expense when there is no cash flow yet and the business partners have known each other for years. However, the decision to forego an operating agreement because you trust your partners is penny wise and pound foolish.

Several months or even years after the LLC is formed and the business started, issues often arise among business partners who have known each other for years. For example, there may be confusion about each partner’s responsibilities, each partner’s exact ownership of the LLC, or about each partner’s respective investments (especially when partners invest differing amounts). Without an operating agreement governing these issues in writing, the partners may have to resort to litigation to resolve their issues and recoup their investments. Litigation is costly and time consuming and can threaten the underlying business. But litigation, and the uncertainty that leads to it, can be avoided from the outset by hiring an attorney to draft an operating agreement that reflects the business partners’ particular needs in managing their LLC. This small investment can provide long-term stability to the business and head off disputes among partners before they occur. For more information about this issue or other business matters, please contact Attorney Joshua J. Butera at 401-824-5100 or email jbutera@pldolaw.com.

 

 

 

Disclaimer: This blog post is for informational purposes only. This blog is not legal advice and you should not use or rely on it as such. By reading this blog or our website, no attorney-client relationship is created. We do not provide legal advice to anyone except clients of the firm who have formally engaged us in writing to do so. This blog post may be considered attorney advertising in certain jurisdictions. The jurisdictions in which we practice license lawyers in the general practice of law, but do not license or certify any lawyer as an expert or specialist in any field of practice.

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Joshua J. Butera is an Associate with Pannone Lopes Devereaux & O'Gara LLC and a member of the Corporate & Business Law and Municipal Law teams. He concentrates his practice assisting clients in the areas of corporate compliance, administrative and regulatory law, policy and contract law and other general private and public sector issues. He is a skilled legal researcher and writer and has assisted in the representation of individuals, private organizations and public agencies on numerous legal matters before state and federal courts. Attorney Butera is a former Special Counsel in the Office of Governor Gina Raimondo, where he conducted legal research and analysis on a wide range of legislative issues and public policies. He drafted briefs before the Rhode Island Supreme Court and Superior Court and prepared FOIA responses and other memoranda. In this position, he also advised senior staff on legal matters and policies related to the Rhode Island Department of Transportation, the Rhode Island Public Transit Authority and the Rhode Island Airport Corporation. Prior to his public service for the State of Rhode Island, he worked in the litigation department of an international law firm representing clients in numerous areas of the law including contract law, the Fair Housing Act and the False Claims Act. He also represented pro bono clients regarding landlord/tenant disputes, asylum cases and the Individuals with Disabilities Education Act. Attorney Butera earned his J.D. from Boston University School of Law, cum laude, and was the Managing Editor of the Boston University Law Review. He is a Melville M. Bigelow Scholarship awardee and a recipient of the G. Joseph Tauro Distinguished Scholar. While in law school, he served as a judicial intern for the Honorable John J. McConnell, Jr. of the United States District Court for the District of Rhode Island and in the U.S. Attorney's Office for the District of Massachusetts. He graduated from Brown University with a B.A. in Political Science. Attorney Butera is admitted to practice law in Rhode Island and Massachusetts and before the U.S. District Courts for the Districts of Rhode Island and Massachusetts. To contact Attorney Butera, please call 401-824-5100 or email jbutera@pldolaw.com.

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