Forming an LLC: Walking Your Client Through the Paperwork, Part 2

By Mollie Schwam

This is the second in a two-part series. Read part one here.

Now that you have submitted the client’s Articles of Organization to the North Carolina Secretary of State’s office for filing, it’s time to prepare a draft operating agreement.

The operating agreement of a Limited Liability Company (“LLC”) is an internal company document that outlines the structure of the company’s finances, how the company will be organized, and the rules and regulations for governance. Note, most states, including North Carolina, do not require operating agreements. And, companies do not file their operating agreement with the NC Secretary of State’s office.

Some pertinent information to include in an operating agreement:

  1. A list of duties of managers and members.
  2. Distribution of profits and losses.
  3. Duties of managers and members.
  4. Percentage of member/managers’ ownership.
  5. Voting rights of member/managers.
  6. Information about company meetings, such as time and place.

Your attorney will talk to the client about their vision for the company in terms of internal structure, management, and member/manager rights and have you prepare the draft.  Note, if this is your first time drafting an operating agreement, ask your attorney for a template agreement you can use to begin the draft.  You may also be tasked with speaking with the client, just make sure you are gathering information and not discussing operational issues that may be construed as giving legal advice.

Clients may also ask you why they need an operating agreement. Always discuss any concerns your client may have with your attorney.  For general reference, here are a few reasons why your attorney will recommend the client create an operating agreement:

  1. Operating agreements give members protection from personal liability to the LLC.
  2. A company’s rule and regulations will be recorded in an executed document (rather than a verbal agreement).
  3. State default rules govern LLCs without an operating agreement. Because state default rules are often very general, an operating agreement can be specific and tailored to the individual LLC.

Lastly, the client must execute the operating agreement by having all members/managers of the company sign the document. Once the operating agreement is signed, it is an official contract binding all members/managers to the terms and rules in the agreement. The company should store the agreement in its official corporate files, and the attorney may want to also keep a copy in the client’s file.

Information in the post is taken from the North Carolina Secretary of State’s website and can be viewed here. This post appeared originally on Matheson & Associates PLLC/Beer Law Center

Mollie Schwam is a North Carolina Certified Paralegal with Matheson & Associates PLLC in Raleigh. Mollie graduated from Smith College in Northampton, MA with a bachelor’s degree in English and a minor in psychology. During college Mollie interned at the U.S. District Court for the Eastern District of North Carolina in Raleigh. Observing the dynamics in the courtroom between lawyers, judges and witnesses was an exciting and truly eye-opening experience. After college Mollie worked at the Raleigh Police Department as a volunteer and participated in ride-alongs with other volunteers. Both of these experiences commenced her passion for the field of law. Mollie obtained her paralegal certificate from Meredith College.

To take a break from law Mollie enjoys reading books, preferably historical fiction by Philippa Gregory, and hiking along North Carolina trails with her small, yet fiesty, dog