A limited liability company (LLC) is akin to a partnership, except that its owners — known as members — are generally insulated from personal liability for the company’s debts and other obligations. An LLC operating agreement is a contract among the members that serves as a governing document for how the organization will go about its business activities.

There is no requirement under Virginia law that an LLC have an operating agreement, but it is far better to have one, since the LLC will otherwise be subject to rules of operation specified by statute. A customized operating agreement allows for flexibility and responsiveness to the organization’s particular purposes and needs. 

While details may vary based on your LLC’s circumstances, here are the basic components of every operating agreement:

1. Formation and ownership — This section specifies the name and address of the LLC, its date of created, its anticipated duration, its ownership structure and a description of its intended services. It identifies all members and their ownership percentages. 

2. Contributions and distributions — This section outlines the initial contributions made by each member and how further contributions will be handled. It defines how profits and losses will be allocated among members, based on ownership percentages and other factors. It further sets out procedures for requesting additional capital contributions from members. 

3. Management and decision-making — This section outlines the powers and duties of managers and members, how managers are elected and their tenure and salary. It defines voting rights, how voting will take place and the percentage requirements for approval of particular actions. In addition, it outlines procedures for member meetings, communication protocols and record-keeping, including the accounting method to be used and access rights to be granted.

4. Indemnification — The agreement should define whether and how members and managers will be indemnified for certain actions taken on behalf of the LLC.

5. Membership changes and buyouts — This section outlines the process for admitting new members, including capital contribution expectations. It sets rules for transfers of ownership interests, including restrictions and buy-sell provisions. Finally, it outlines valuation methods and buyout procedures for a member leaving the LLC due to withdrawal, death or expulsion.

6. Dispute resolution — This section specifies how to resolve disagreements between members or managers, including mediation or arbitration options. It should specify which state’s law will govern the interpretation of the operating agreement in resolution processes.

7. Dissolution — This section defines the events that could lead to dissolution and the process for winding down the business.

This is not an exhaustive list. An agreement can also contain such provisions as noncompete and nondisclosure clauses and prohibitions of conflicts of interest. An experienced business formation attorney can ensure your operating agreement is workable and tailored to your circumstances.

At the law firm of Pikrallidas & Probasco, we place our clients' best interests ahead of all else. When you need an experienced attorney to handle your business matter, call us at 703-267-2600 or contact us online.