In this week's Freedom Friday blog and email newsletter, I want to talk about a topic that I have addressed in other blogs and email newsletters, but not as in-depth.  Many business owners ask what's the next step after you form your LLC with the Oklahoma Secretary of State.  The simple answer is draft your operating agreement, which is basically the same as bylaws are for a corporation.  Even if you're a single-member LLC, you still should have an operating agreement.  The biggest pitfall I sometimes see is not having an operating agreement at all.  However, if you choose to take the high road and draft your operating agreement, there are several pitfalls which you should avoid.  In today's Freedom Friday blog and email newsletter, I'm talking about how to avoid pitfalls in your LLC operating agreement.

Here are five (5) pitfalls to avoid when drafting your agreement:

1.  Ambiguous Language

The first pitfall you should avoid when drafting your LLC operating agreement is ambiguous language, i.e., language that you don't understand.  An operating agreement needs to clarify the roles and responsibilities of the owners (members) and managers of an LLC, not to confuse anyone.  The operating agreement should act as a roadmap for decision making, operating, and all sorts of important matters, which means it should have clear rules, processes, and guidelines.  The language in the operating agreement should not leave room for interpretation, which can lead to major issues down the road.  This is why you should have a lawyer help you draft your LLC operating agreement to help avoid this pitfall.

2.    Potential Loopholes

The second pitfall you should avoid when drafting your LLC operating agreement is potential loopholes.  Unless you have experience, you may not be able to spot if there is language in the operating agreement that leave behind loopholes which parties can take advantage of in the future.  If you hire a lawyer to help draft your LLC operating agreement, this pitfall can also be avoided.

3.    Leaving Sections Out

The third pitfall you should avoid when drafting your LLC operating agreement is leaving sections out.  Sometimes partners or members in an LLC will want to leave more complicated matters out of the LLC operating agreement and revise the operating agreement later.  Then they forget to make those necessary changes and end up having a problem later.  This pitfall could be avoided by working through the difficult issues at the beginning, especially with the help of an experienced business attorney.

4.    Unnecessary Sections

The fourth pitfall you should avoid when drafting your LLC operating agreement is unnecessary sections.  For example, if you're a single-member LLC, you don't need a section on fiduciary duties, a manager, or having a board of managers (I've seen it all!).  If a section does not apply to your LLC, you don't need it.  However, many small business owners don't have the experience to understand why a section is not necessary, and leave it in any way, creating issues in the future.  All of this, though, could be avoided with the assistance of a business attorney.

5.    Not Signing It

The fifth pitfall you should avoid when drafting your LLC operating agreement is simply not signing it.  An LLC operating agreement is not a valid agreement unless it is signed.  Needless to say, a business lawyer will help avoid this problem, but even if you are a single-member LLC and create your LLC operating agreement online, you still need to sign the operating agreement for it to be effective.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/