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Operating Agreements

An operating agreement is a written document that governs the relationship between members (owners) of an LLC (Limited Liability Company).  A typical operating agreement will address the following:

·       Each member's percentage ownership interest in the LLC

·       The allocation of the LLC's profits and losses among the members

·       How the LLC will be managed and by whom

·       The voting power and rights of each member

·       The process for adding new members

·       How existing members may value and sell their membership interests

Most importantly, an operating agreement allows the LLC members to avoid being subject to Kentucky's default rules as set forth in Kentucky's Limited Liability Company Act.  This means the members can run their LLC in the manner best suited for their line of business and tailored to their specific needs.  Additionally, if a dispute arises between the members, a court will look to the operating agreement's provision to resolve the dispute.   

Although Kentucky law does not require an LLC to have an operating agreement, it is an essential document if you want to insure that all LLC members are aware of their rights and responsibilities.