When an LLC is forming in any state, few legal documents are mandatory to form. One of such documents is the operating agreement which includes all the operational and financial information of the LLC. Drafting the New York LLC operating agreement can be very beneficial. Our guide will answer why you should immediately draft one for your LLC.
What is New York LLC Operating Agreement?
The New York LLC operating agreement basically informs all the members about the financial and operational details of the LLC. It is strictly an internal document meant to guide the members of the LLC in situations of confusion and conflicts. To be more clear, the agreement will include information like member details, voting rights, power and responsibilities of members, the solution to any circumstance that may be bound to happen, and more.
A good example of this could be if a member decides to leave, then what will happen to his or her shares, what about their voting rights or how to find the replacement, and all such questions will be addressed in the operating agreement.
Why do I Need an Operating Agreement?
After you file your LLC in New York, an operating agreement is the next crucial step for any LLC. The New York secretary of state asks every LLC to draft an operating agreement within 90 days after filing the New York articles of organization. Here is our guide on how you can register your New York LLC.
This operating agreement is very beneficial for the LLCs as they can use this agreement under many confusing circumstances and go past the conflict. Here is how:
- LLC with a single member will need this document to protect their LLC status.
- Operating agreement clarifies the roles and power of every member.
- This document can also be eligible as proof in any court proceedings.
Note: If you do not create your New York LLC operating agreement, you can be legally penalized.
Is New York LLC Operating Agreement Mandatory?
Yes! it is mandatory for an LLC in New York to draft an operating agreement. The New York department of state asks every LLC in the state must have a New York LLC operating agreement within their records by law. This will build the credibility of your LLC and protect your assets. You can draft your operating agreement yourself or through your registered agent.
What Does an Operating Agreement Cover?
An operating agreement covers every important detail of your LLC mainly the structure and the financials. If you have already registered your LLC, this should be your next immediate step. Here is what needs to be drafted:
1. Details of LLC Formation: Include every detail of your company formation your LLC name, registered agent, type of the company, as well as agent’s address. If you haven’t found your LLC name, you must do the New York business entity search and then move forward.
2. Structure of Ownership: Mention the details of the ownership that the members of the company will follow. Each member must know their roles based on their contribution.
3. Management Type & Voting Rights: Ensure that you include the management type of the company. Will it be single-member or multi-member managed? Also, make sure to distribute equal voting powers.
4. Positions & Meetings: Enlist the duties as well as responsibilities of the members of the company. Accordingly, set forth meetings and take mutual ideas to treat everyone equally.
5. Planning & Distribution: Plan the responsibilities of each individual thoroughly. Distribute the profit/loss according to the positions and contributions in the company.
6. Dissolution: Map out a hypothetical example that if a company decides to dissolve the LLC due to any reason that the members will respect the decision. It must include the details of before and after dissolution decisions. For eg: if a company is dissolving then who will bear the loss and who gets the net profit amount?
Will my NY Operating Agreement be Public?
Although it is mandatory to draft New York LLC operating agreement, it is not necessary to file it with the state. It is simply an internal document to help the firm with future conflicts. As it is mandatory, you can create your agreement before or after registering your LLC. Although we would recommend you draft your agreement after the LLC formation process. Therefore, here is our guide on how you can file your New York articles of organization if you have not done it yet.
Who Can Ask for my Operating Agreement?
As you know your New York LLC operating agreement is not necessary to file with the secretary of state. Although there are circumstances where you might need to show your agreement as proof. You may need it at the time of opening a bank account or show it to your investors or maybe present it in court for a proceeding. In such cases only should you show your operating agreement.
Do I have to Draft an Agreement Professionally?
You can either draft an operating agreement for your LLC on your own or get help from the NY registered agent that you have hired for your LLC. As legal work is important for your business, you must seek out professional help.
A professional will help you avoid mistakes and draft an appropriate agreement that describes finance distribution, roles, and responsibilities. A professional will surely mention what a company expects from its owners as well as employees.
Cost of New York LLC Operating Agreement
If you decide to draft a New York LLC operating agreement on your own or with the help of your registered agent then it will not cost you anything. But, when you seek professional help they will charge you the amount of their service. Generally LLCs hire professionals to handle the complete process of registering their business and hence this cost becomes zero.
Can I Alter New York LLC Operating Agreement?
It is mandatory to form an operating agreement and file it under your business records. If in any case, the business faces major changes then you have to include it in the operating agreement.
Thus, you can revise the NY LLC operating agreement and keep it up to date. Make sure you have both the copies of the updated and old operating agreements in the records.
What if I don’t have a NY Agreement?
To protect personal assets from business liabilities, an operating agreement is necessary. You will not be able to avoid internal conflicts or any other litigation in the future if you do not have an operating agreement. The distribution of the ownership will be unequal and there will be no proof for the members.
You will not be able to open a business account if the agreement is not available. Apart from that if for any reason you end up in a court without an operating agreement then you might have to face certain consequences.
Frequently Asked Questions
1. Is it mandatory to file NY operating agreement with SOS?
No, it is not mandatory to file the agreement with SOS but it is mandatory to file it under business records.
2. When should I draft my NY LLC agreement?
You must draft the agreement before, on the time of, or within 90 days after filing articles of organization.
3. Can the government ask for any additional details to be included in the agreement?
No, the NY government cannot ask any entities to add additional details to their agreement.
4. Is written operating agreement necessary in New York?
Yes, according to the NY SOS it is important to draft a written operating agreement.
To Conclude
Avoid putting your credit at stake and draft an accurate New York LLC operating agreement. A registered agent as well as members of your company can help you draft the legal paperwork. Preserve the copies after you revise the document and make sure it is filed under business records for future references.