In this video, Texas LLC Formation Attorney goes through the functions of an Operating Agreement, and why this contract is so important in the management of your small business. Operating Agreements are just that: contracts. This contract explains how you, the members and managers of the LLC, are to operate the business. Your obligations through this contract are extremely important to uphold, or you will find yourself in breach of contract with the LLC, and subject to piercing of the corporate veil or shareholder derivative suits.
What is an Operating Agreement?
A contract between the members and the company governing how the company is to be managed and operated.
How Do I Use the Operating Agreement?
The Operating Agreement is the tool that you use to run the business: every time you want to make a substantial change, or have the membership agree to something, that decision will be governed by the Operating Agreement and the rules, guidelines, and formalities that are contained therein.
What Happens If We Don’t Follow The Operating Agreement?
Failing to follow the rules or guidelines in your Operating Agreement will result in the members (or membership at large) to be in breach of contract with the LLC. Being in breach of contract means that the LLC is exposed to liability through shareholder derivative suits. Additionally, especially if there is only one member or manager, the personal assets of that single member of the LLC are put in jeopardy through “piercing of the corporate veil” by creditors.
Consider these other articles on LLCs and their Operating Agreements in Texas:
Top Three Reasons NOT To Use A Form Operating Agreement
What Happens If I Don’t Have an Operating Agreement For My LLC?
LLCs and Personal Liability: Avoiding Liability in LLC Management
Do you have questions about your LLC Operating Agreement, or general business law questions you’d like to review with an attorney, Click Here to get in touch with San Antonio Attorney Nathaniel Gilbert.