How to Create Your Own LLC Operating Agreement

How to Create Your Own LLC Operating Agreement

– Well hey there, this is
Seth from the REtipster Blog, and in this short video
today, I want to show you a really quick and easy
way that you can create the operating agreement for an LLC. So, if you’re running your own business, and if you have your own LLC, chances are at some
point you’re gonna have to create this document. A lot of times, banks
or lenders will have to see this kind of paperwork in order to verify that you actually have control over your LLC, or if your LLC is owned by multiple people,
the operating agreement kind of helps spell out who owns it, who has the control, who makes the profit, when the profits get distributed, really a lot of potential things can be baked into this document. But for a lot of reasons, it’s an important thing to have, and it’s actually a
good idea to create this at the time that you register your LLC, so that from day one,
this document exists, and just spells out all the details about who has the control in the company. So, if you’ve got a company that just has one individual, maybe it’s
just you and that’s it, this is gonna be a pretty simple process, but if you’ve got a LLC that has maybe you and your spouse,
or maybe you and another business partner, or maybe
you and 10 other people, then this document gets
even more important to put together and to get right. Before we dive into this, I’ll just say I’m not an attorney, so this is definitely something where, I mean
if you have any confusion about it, you should definitely be talking with an attorney just to make sure they can inform you of all the specifics and issues to watch out for, because they can definitely be there. But if you’ve got a
fairly simple situation, and you’re confident that you know how to do this yourself, I’m gonna show you how to do it with a service
here called Rocket Lawyer. I’ve been using Rocket
Lawyer for several months now for a lot of different
things in my business, and I’ve just found it to be by far the easiest way to create these
kinds of forms on your own, if that’s what you want to do. Now, this site is
definitely not a substitute for legal advice, so
just keep that in mind. You are kind of taking some risk into your own hands if you’re
doing this yourself, but in a lot of situations,
like for example, I have an LLC where I am
the sole owner of that LLC, and there’s just nobody else involved. That’s a very cut and dry, straightforward kind of situation, so I would totally be comfortable using this for somebody like myself. But if this is something that you want to try to put
together, it’s very quick, it’s not hard at all. Let me just show you how this works, and if you want to create one yourself, there’s a link beneath this video, you can check that out
and it will take you right to this exact same page that you’re seeing here on the screen. When you first get to the
Rocket Lawyer website, you’re gonna see a page that
looks something like this, and in this situation, I’m
just gonna put together an operating agreement
for a fictitious company. I’m gonna put two people in this LLC, just so you can get an idea for how the process can go when you have more than just one person involved. Again, this is something that is different in every scenario, so I’m not necessarily saying you need to be filling out these exact same pieces of
information that I am. This is just one possibility if there are two individuals involved. So, let’s say that this company is in, oh I don’t know, Nebraska,
I’ll just pick one at random. Then the first question is, what is the name of the
Limited Liability Company? Let’s just call it ABC Company, and then I’ll hit Continue. Then where is the LLC being formed? Go ahead and say Nebraska. Continue again. What date will the LLC
Operating Agreement take effect? We’ll let’s just say in
this case, January 1, 2017, and I’m really just picking that because it’s the first day of the year. I would say generally you would pick whatever the date is that you were registering for your LLC, or whatever today’s date is. It’s really kind of up to you. Just whatever rules
you want to be in place from that day forward, that’s
the date you would pick. We’ll hit Continue. Then enter the name of one of the members. I’ll say the first one
is John Smith, Continue, and in this situation,
we’re gonna say that there are two individuals,
John Smith and Jane Smith, and at the time of forming this company, they’re both going to be injecting an equal amount of cash so that they both own 50% of the entity. So let’s say that John is putting in cash, and he’s gonna be putting
in a thousand bucks. Then he’s also gonna own 50%. Then we’re gonna add another member here. This one is gonna be Jane Smith, and these people could
be husband and wife, or they could just be
individuals that are not married. I’ll say Cash for her as well, and a thousand bucks, Continue. Percentage ownership, 50%. Okay so now we’ve got our
two individuals in there, and what is primary address for the LLC? Just make one up here, and
then we’ll hit Continue. What is the name and address
of the LLC’s registered agent? So just a quick explanation
on what this means. The registered agent does not necessarily mean that this person has
any control over the LLC, it just means that this is the person who sent in the original registration for the LLC in that state. So in a lot of states,
when you go to their state-wide business entity search on the state government website, you can search for the business name. It will usually tell you the name of the registered agent,
which is the person who filed for the paperwork
in the first place. So this does not necessarily
need to be John Smith or Jane Smith, and in a lot of situations, say if you wanted to protect your privacy, and not display either your personal name or your business address
when people go ahead and search for your
business name like this, you can actually do that
through Rocket Lawyer. They have a registered agent service where you can pay them to
act as your registered agent, so if somebody ever
searches for your company, it’s not gonna show your name and address, it’s gonna show their name and address. It’s kind of a nice little privacy protection thing if that’s
something you want to do. I’ll have a link to that service
beneath this video as well, so be sure to check that out if that’s something you’re interested
in for any reason. But, if you’re not, let’s
just say in this case John Smith is fine with
having his own name on there, and his own address. He would just go ahead and
put this in here like this, and then his business address
as well, whatever that is, and we’ll hit Continue. Then the purpose, this is basically where you just outline whatever the point of the company
is, whatever they do, whatever service or product they provide. I guess for example, I run a
real estate investing business where I buy and sell land, so in my case, I could
say real estate investing company specializing in vacant land, or something like that. I literally just made that up on the spot. It’s just kind of your chance to explain whatever it is the purpose
of your business is. Once that’s in there, we’ll hit Continue. Then for how long will the LLC operate? In my case, I mean whenever
I’ve created an LLC, I’ve never had like a planned end date when that LLC would end. I would always just
click this top one here for it to operate indefinitely. So that’s what I would do, but it’s obviously up to you,
if you have different plans, you can specify that here. Then has or will the
LLC elect corporate tax treatment from the IRS? So basically, this is kind of getting into like tax expertise, which
I don’t have a lot of, but it is possible to have your LLC taxed as a corporation, which
basically just means there’s different tax consequences, which may or may not benefit you depending on your business model and the way your business works. So this is definitely something you’ll probably want to talk to a CPA if you’re gonna do something special here. In my case, I’ve never
done this kind of thing. I just get taxed as an LLC, so I would just click No in my case. Then how will decisions
be made by the Members? This is where you can specify which individuals have the
power to make decisions for the company based
on their voting rights, and in the vast majority of cases, most companies choose one
of these two options here where either all decisions
require a majority vote based on the percentage of ownership. In this case, you have two 50/50 owners who have equal voting power in that case. But you could also set it up so that, say if it was a 51/49 ownership where one person clearly
had more ownership than the other, but you still wanted them to have equal voting rights. In that case, you could
click the second one. Just for the case of this example, I’ll leave this top one
checked, go from there. Then how often will the LLC distribute the LLC’s profits to the Members? This is totally up to
the user to decide this. Just like looking at my LLC for example, I do mine monthly, but I know people who do it annually and quarterly, and all kinds of different setups, so that’s totally up to you. Will the LLC be managed
my Members or Managers? This is kind of like if you wanted to put one individual in
charge of everything. Say if we wanted to put
John Smith in charge and name him the manager,
then he would kind of just be the manager of the company, but you could also just
leave him a member as well, and then Jane Smith
would also be a member, so they kind of just work it together, and there’s not one presiding power. So again, it’s totally up to
you however you want to do it. In this case, we’ll
just say that John Smith is the manager, and we’ll
click this bottom one here. Then, will the LLC appoint officers, such as a President,
Secretary, or Treasurer? If you’ve got a big LLC with
lots of individuals involved, you could totally do this. I’m not going to here,
I’m just gonna click No. Then, when will the LLC’s fiscal year end? This is like the end of
the year for tax purposes, so all of my LLCs for
example just end in December, just like everything else would. But there’s some people
who for whatever reason will choose different times of the year. It’s totally up to you. I think a lot of people
just choose December, just because that’s the
normal way most people do it, so that’s what I’m gonna
click there, click Continue. If a Member withdraws from an LLC, how many days will the LLC have to buy the withdrawn Membership
interest and split it among all the members? I’m just gonna pick 30 days here, just seems like a nice
easy number to work with. Then, how will the withdrawing
Member’s Membership Interest be split? You can either have it be equally between the remaining Members, or proportionally between the remaining members. In this case, I’m just
gonna leave it as equal. Then, if the LLC Members choose not to buy the withdrawn Membership
Interest together, how many days will be
given for an individual Member to buy the withdrawn
Membership Interest after the joint buy-out days have expired? I’m just gonna go with
another 30 days here. Then, what vote will be
required to dissolve the LLC? You can either make it be majority, so whoever collectively owns
the majority of the LLC, or you can make it unanimous, so that basically everybody must agree, or the LLC is not dissolved. I guess just for this example
I will go with Majority. That’s all there is to it. It’s pretty straightforward. Rocket Lawyer is now
generating my document. One thing to keep in mind, an operating agreement essentially means nothing until the document
is signed by both owners. So, just keep that in mind. You can totally create this document, but if it doesn’t have a signature, then it just doesn’t mean anything. It’s just a random document with nobody agreeing to anything, so if you’re working with a bank or anybody
who’s trying to verify who has the control of your LLC, you’re definitely gonna
have to sign this thing before you send this to them, because without a signature,
it doesn’t really tell them anything because it’s not verified by the actual signers. Rocket Lawyer makes it pretty easy. You can just sign it right here online, or if you want, you can
go ahead and download an unsigned copy as like a PDF, or a Word document, say
if you want to get in here and edit this after the fact, you could do that too. We’ll just go ahead and get the PDF, and then here we have it. Just a pretty basic straight
up template type document. I’ve gotten templates from other websites before in the past, and
those can totally work too, it’s just that they don’t make it nearly as easy as Rocket Lawyer does, because you kind of have to hunt through the Word document and make
sure you’re hitting everything, whereas with Rocket
Lawyer, it’s like you can’t really miss anything without knowing it, because it asks you these
questions one by one, and as long as you can
answer those questions, it will create the document and insert all the relevant information exactly where it’s supposed to go, so there’s a lot less guesswork involved, and
I just think it makes it way, way, way easier. So again, that’s how Rocket Lawyer works. There’s definitely
other options out there. This is not the only
way to get the job done. Or you could also go and hire an attorney and pay them hundreds if not thousands to do pretty much the same thing. Sometimes that’s totally appropriate if you have a very complicated
ownership structure in your LLC, and you need
to get really specific about who can do what,
then I think an attorney can totally be a viable
way to get this done. But if it’s a fairly simple structure and you’re confident
with how that’s supposed to be setup and you’re willing
to do this work yourself, if you can even call that work, because as you can see,
that was really easy what I just did, but if you
want to tackle this yourself, Rocket Lawyer is an awesome way to do it. The pricing for Rocket
Lawyer is pretty cheap. It’s actually setup as
a monthly subscription, or you can also sign up
for a annual subscription if you know you’re gonna be using it again and again and again. If this is the kind of
thing where you just need to create one document and that’s it, you can totally sign up for just a month, and then be done with it. Or if it’s something that you’re gonna be going back to over and
over again like I do, then one of the subscription options can make a lot of sense. Either way, if you’re gonna
be using it repeatedly, it will be way, way cheaper than working with an attorney, especially if you don’t really need an attorney
for a fairly simple document that you’re trying to create. So anyway, hopefully that’s helpful, and hopefully that all makes sense. Again, I use Rocket
Lawyer for tons of stuff, including deeds, land
contracts, deeds of trust, promissory notes, this kind of thing. They just offer a ton
of different services and products that can make
your life way, way easier. So if this kind of thing looks like it could be useful to
you, be sure to sign up. Again I have an affiliate
link beneath this video. I will get a small commission if you signup though that link. Obviously don’t feel any pressure, I’m not saying you need to do this. It’s not a prerequisite to do what you’re trying to do. I just think it can make
the process way easier, and it’s a great option
just to be aware of. So thanks again for watching the video. Hopefully you found it helpful, and hopefully I’ll see you soon.

9 thoughts on “How to Create Your Own LLC Operating Agreement

  1. Excellent tip, thanks.

  2. Hey Seth, Should the Operating Agreement be signed and notarized?

  3. if there is any chance you may be sued at any time this is not something you want to do yourself.

  4. Is there a separate cost to set up the Operating Agreement besides the monthly subscription?  Great work as always Seth!

  5. Thank you for sharing this advice with the world, as I soon to be new business owner with 000 experience, this website is GOLD in the bank!

  6. With rocketlawyer, their documents are not legal and wont hold up in court so where does this put us?

  7. Consumers likely have little recourse if they end up with a problematic document from one of these sites. In its terms of use, LegalZoom “makes no warranty” that the site or materials “will meet your requirements” or that the results will “be accurate or reliable.” RocketLawyer says that its information, software, products and services “may include inaccuracies” and that “information and opinions received via the website should not be relied upon for personal, medical, legal or financial decisions.”

  8. Thanks

  9. GREAT vlog… thank you. more needs to be spoken about this coming from a Private Lender

Leave a Reply

Your email address will not be published. Required fields are marked *