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Willowbrook business law attorney operating agreement

Many small business owners opt to have a limited liability company (LLC) business structure. This provides the owner, or multiple owners known as “members”, with more personal protection but less formality than other business entities. Those who decide to follow an LLC structure should have an operating agreement in place to ensure that all members are on the same page and the business’s functional and financial dealings are explicitly outlined. Operating agreements are not required for LLCs; however, they offer a number of benefits and are always a good idea when starting your business. For help with the legal side of your operating agreement, work with a reputable business attorney who can guide you through the legal document’s details.

What Is an Operating Agreement?

For LLCs that have multiple members in charge of the company’s dealings, an operating agreement is a good way to maintain continuity between the owners and management. An operating agreement is a legal document that describes the operations of an LLC and includes agreements between the business’s various owners. The document acts as a rules and regulations manual and partnership agreement to meet the specific needs of all of the members. Once the document is formulated with an attorney and signed by all of the LLC’s members, it is legally binding in the same manner as a business contract

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Burr Ridge business law attorney

If you have a self-made, self-owned business, the connection that you have with your work is likely more than just business. Small business owners typically view their work as more than just a job. In many cases, it is their life’s passion and work all combined into one place. Building a business can be an exciting, but daunting task, especially if you feel as if some of the business jargon is slightly out of your reach. Maybe you know how to run the day-to-day business tasks, but the larger picture appears hazy. If this is the case, you should turn to a reputable business attorney for help. They can guide you in the right direction to find the proper fitting business structure, draft and review business contracts, and more. At Shakfeh Law LLC, our firm has worked with its fair share of businesses, both small and large, new and old. This experience has given us the knowledge of what business model works best depending on the business’s size. For small businesses, we suggest forming a limited liability company (LLC).

What Is an LLC?

A limited liability company is a hybrid business model that offers the benefits of a partnership and a corporation. Companies that are considered LLCs may have more than one owner, known as a “member,” and these members can be individuals or other companies. There is no cap on the number of members that an LLC can have, giving the initial business owner significant flexibility on who they allow to be involved in their business. LLCs, like corporations,  also allow members to keep their personal assets separate from the small business’s creditors.

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Introduction

I previously wrote about the basics of how to start a business.  Limited Liability Company (LLCs) are very popular for businesses, especially smaller ones.  LLCs are a hybrid between partnerships and corporations in that the owners (called "members") are more like partners (versus shareholders) but still have the liability protections of larger corporations.  Previously, business owners who entered to partnerships did not have the same liability protections.

Basics of LLCs

LLCs are also popular because business owners can customize them almost anyway they please.  Although the default relationship between LLC members is a partnership, a skillfully crated operating agreement (the document that governs the LLC) can create a corporate like structure of "units" similar to shares in a corporation.  Membership units can have different rights and preferred statuses associated with them similar to shares.

Chicago Business Law AttorneyAnother advantage to an LLC is choosing profit-sharing models.  As a default, LLCs are pass-through entities that are not recognized by the IRS.  This means that members report their income on their personal income taxes.  However, LLCs can choose to be taxed as a corporation, specifically an S-Corp.  This is why business owners don't actually have to choose between an S-corp and an LLC because the LLC can be both.  Many people incorrectly believe that an S-Corp is a type of corporation.  In reality, it is actually just a tax designation can be used by both corporations and LLCs.  LLCs typically want an S-corp status if they are single member LLCs or LLCs with employees.  Otherwise, LLC members simply make their income by drawing on the profits of the company.

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