Forming a limited liability company (“LLC”) is a great option for many Georgia business owners for several reasons. One great aspect of an LLC is that they have flow through tax characteristics. Another great aspect of an LLC is their overall structure – they are not limited to one class of shareholder, are not limited to 75 shareholders, and can have preferred interests and participating debt. When choosing this option for your business, it is vital that you have a written operating agreement and articles of organization.
I HAVE A VERBAL AGREEMENT, WHY DO I NEED A WRITTEN ONE?
You might think a written operating agreement for your LLC is not needed if you have a verbal agreement or understanding. First of all, what is an operating agreement? An operating agreement gives you the freedom to define profit distributions, dissolution terms, voting power, and more. In addition, unlike a written operating agreement, to create an LLC in Georgia, you have to file articles of organization with the Georgia Secretary of State. The articles of organization are required to have the name of the LLC, the organizer, and the name and address of the registered agent. The articles of organization also allow you to provide information about whether the LLC will be member managed or manager managed.
So why are these documents important? In the event you do not have a written operating agreement for your LLC, the Georgia default rules governing an LLC apply. These default rules can be found in the Official Code of Georgia Annotated (specifically, O.C.G.A. § 14-11-100 – 14-11-1109). Many of the default rules might not be in line with the agreement between yourself and your business partner(s), if you have one. As such, it is strongly advised to have a written, signed operating agreement to govern your LLC. You can avoid having the default rules apply to you and your LLC by agreeing to certain terms in the operating agreement and articles of organization. The next blog will provide you with information as to the default rules and how you can avoid their application by drafting certain language in your articles of organization and operating agreement.