To protect the operations of their business, every New Jersey LLC owner should have an operating agreement in place. While an operating agreement is not legally needed by the state, it will create clear norms and expectations for your LLC while also establishing your legitimacy as a legal company.
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What Is an Operating Agreement for a New Jersey LLC?
An operating agreement is a legal document that describes an LLC’s ownership structure and operational practices.
Whether you form a single-member or multi-member LLC, your operating agreement should include all of the following subjects. Some of these requirements will have little impact on the day-to-day operations of a single-member LLC, but they must be included for legal purposes.
Organization: When the LLC was created, who its members are, and how ownership is distributed. Multi-member LLCs may have an equal ownership structure or allocate different “units” of ownership to different members.
Management and Voting: Whether the LLC will be governed by its members or by an appointed manager, as well as how members will vote on business concerns. Each member typically has one vote, but you may want to give certain members greater voting power than others.
Capital Contributions: The amount of money invested in the firm by each member. This is also where you should plan how you can raise extra cash in the future.
Distributions: How revenues and losses are distributed among members. The most typical approach is to disperse earnings in an equal distribution. If you want them distributed differently, make that clear in your operating agreement.
Membership Structure Changes: How positions and ownership will be transferred if a member departs the firm. The method for buying out and/or replacing a member must be outlined in the LLC’s governing agreement.
Dissolution: If all of the members of your LLC decide that you no longer want to do business, you should formally dissolve it. An essential component of your operating agreement is outlining the hypothetical process of dissolving your firm.
What Is the Purpose of a New Jersey LLC Operating Agreement?
An operating agreement is required regardless of the sort of New Jersey LLC you establish. This is why:
The state has recommended it. All members of a New Jersey LLC may sign into a formal operating agreement to manage the company’s internal operations, according to New Jersey Revised Statutes Section 42:2B-2.
It will keep your business partners from clashing. If you’re forming a multi-member LLC, having an operating agreement in place can help you avoid misunderstandings by outlining each partner’s position and obligations.
It contributes to the preservation of your limited liability status. If you are the only owner of a single-member LLC in New Jersey, having an operating agreement will assist to guarantee that your limited liability status is sustained by court authorities, as well as contribute to the overall legitimacy of your firm.
Following the Formation of Your New Jersey LLC Operating Agreement
You do not need to submit your operating agreement with your state after you have completed it. Keep a copy for yourself and distribute copies to the members of your LLC.
Following every significant corporate event, such as the addition or removal of a member, it is prudent to examine and consider amending the operating agreement. Depending on how your operating agreement is worded, an update to the contract may need the approval of some or all of the members.
