Does your Massachusetts LLC need an operating agreement?

| Oct 31, 2014 | Business Formation & Planning

While Massachusetts Limited Liability Company Act does not demand that your LLC have a formal operating agreement, it is generally a good idea to have one in place. The operating agreement serves many purposes and is flexible, so it can easily be tailored to meet your businesses specific needs.

As the name suggests, one of the fundamental purposes of a LLC is to limit your personal liability for the debts of the business. And the broad flexibility of the LLC form allows you to create a single-member LLC. 

However, without an operating agreement, your single-member LLC may look very much like a sole proprietorship, and you want an operating agreement to provide evidence, should a dispute arise that you are entitled to the benefits of an LLC’s liability limitation.

An operating agreement is helpful in that it can be used by a single-member LLC to ensure that the LLC completes all of the necessary filings and it can outline the LLC’s financial structure. This also help you prevent the comingling of personal and business assets, which can lead to the loss of limited liability status.

For a multi-member LLC, the operating agreement can delineates a wide variety of other functions, including the rights and duties of the members, how much they own, the percentage of profits shared, management duties, organization of meetings and how to sell or wind-down the LLC.

Because of the potential complexity and the long-term implications of what powers and authority is contained within the operating agreement, it is advised that the founding members of the LLC consult with an attorney experienced in drawing up such documents.

Massachusetts General Laws, “Limited Liability Company Act,” accessed October 29, 2014