Why Your Bar LLC Needs An Operating Agreement

According to our friends at Silverman Law Office, PLLC, if you are buying a bar, one of the decisions you will need to make is what type of business structure it will be. Limited Liability Companies (LLCs) are one form of corporate structure that allows owners to have some of the benefits of a standard corporation, but with more flexibility to control the particulars of the business. This flexibility makes it important to make thoughtful choices about things like voting rules and members’ rights and responsibilities at the start of the incorporation process.

What Is an Operating Agreement?

An operating agreement is a document that controls the structure of the company and the members’ relationships. This can mean many different things, but operating agreements often include provisions related to:

  • Each member’s percentage of ownership
  • The rights and responsibilities of the different members
  • Voting powers and dispute resolution mechanisms
  • Voting and meeting procedures
  • Conditions relating to the sale of the LLC and the members’ related rights

The Benefits of an Operating Agreement

Given the importance of the types of provisions that operating agreements contain, each LLC should have one, even if it is not technically required by law. In many states, the law forgoes this requirement because the law has a set of default rules to apply to LLCs for cases in which the members decide not to draft an operating agreement. While people often rely on these default rules, that is not the best strategy for their business. The major benefit of the LLC is the freedom and control provided by the operating agreement, so skipping the drafting of the operating agreement defeats the purpose.

This is especially problematic because oftentimes the default rules do not make the most sense for a particular business. For instance, most actions under the default rules require only a simple majority vote of the members to be approved. Drafting an operating agreement would allow the members to introduce supermajority votes and other control provisions on more important issues.

Similarly, another central issue to any business is the distribution of profits. In some states, the default rule is that distributions must be made in equal shares to all of the members. This rule seldom makes sense for businesses in which different members have invested different amounts. People often want to tie their distribution to the members’ stakes in the company, which requires a separate provision in the operating agreement. Of course, these are just some of the many choices that operating agreements allow LLC members to make about their business and its structure.

Contact a Business Law Firm Today

There are so many factors to address when you are buying a bar. To make sure that your financial interests are protected, call an experienced attorney.