When starting a business, it`s important to have a clear understanding of the roles and responsibilities of the owners. This is where an SBA operating agreement comes in handy.
An SBA operating agreement is a legal document that outlines the structure and management of a limited liability company (LLC). Specifically, it details the rights and responsibilities of each owner, how profits and losses will be allocated, and what happens if an owner wants to leave the business.
This agreement is not required by law, but it is highly recommended for LLCs because it can help prevent disputes down the line. Without an operating agreement, the default rules of the state where the LLC is registered will apply, which may not be in the best interest of all the owners.
To create an SBA operating agreement, there are a few key components that must be included. These include:
1. Ownership structure: Clearly define the percentage of ownership each member has in the LLC.
2. Management structure: Outline who will be responsible for managing the day-to-day operations of the LLC and how major decisions will be made.
3. Allocations: Specify how profits and losses will be allocated among the members.
4. Capital Contributions: Describe each member`s initial investment in the LLC.
5. Voting rights: Detail the voting rights of each member and how major decisions will be made.
6. Transfer of ownership: Explain what happens if a member wants to sell their ownership interest, becomes incapacitated or dies, including right of first refusal (ROFR) or buyout options.
7. Dissolution: Describe how the LLC will be dissolved if it`s no longer profitable.
By having an SBA operating agreement in place, all members of the LLC have a clear understanding of their rights and responsibilities. Additionally, it can help streamline the decision-making process and provide clarity if disputes arise.
In conclusion, an SBA operating agreement is an important legal document that all LLCs should have. It can help prevent conflict, streamline decision-making and provide clarity to all members. If you`re starting an LLC, make sure to consult with a legal expert to ensure your operating agreement is drafted correctly and covers all necessary components.
