Limited Liability Company

 

When you consider how to go about protecting your LLC, an operating agreement should be near the top of your list, for three critical reasons:

Personal Liability Protection Support

Most people know that a LLC business shields an owner's individual property from the promises made and the money owed by the owner's company.

There are laws across the country that keep the liability of a limited liability company separate from the liability of an individual regardless of his or her involvement with the business.

Despite the benefits allowed, many people do not realize that there are exceptions to the limited liability company laws that can call into question the separation between the company and its owner. This is called "piercing the LLC veil." It occurs when a complainant requests that a court overlook the limited liability company status of an establishment and seeks damages straight from the proprietor.

Piercing the LLC veil can be achieved, if the plaintiff can prove to a court of law that the owner of a limited liability company was using the business as a front for his or her own private interests or just plain ignored the separate legal entity when running the business.

Accordingly, the best way to challenge this kind of claim and to preserve LLC protection is by having an official operating agreement for LLC and following the provisions in that agreement as you operating the limited liability company business.

An operating agreement gives the legal entity its own personality and its own set of rules. Once adopted and followed, the owners become independent owners and agents of the separate business entity. This is what is required to ensure they remain personally protected against liability for business debts and obligations.

Guaranteeing the Company Runs Effortlessly

The law allows for an LLC to be established, but establishment does not make the limited liability company complete. The creation and installation of an official set of governance characteristics is necessary.

This is where the operating agreement for LLC comes in. The contract lets everyone involved know what conduct is acceptable, what is not acceptable, and what requires approval for smooth operation of the business.

Not having this set of rules can lead to a sense of insecurity that may cause trouble. It can lead to an interruption of regular operations.

Plus, third parties may avoid doing business with the LLC if it too is uncertain about whether the LLC is authorized to do business with them. The agreement resolves all these potential problems.

Even more importantly, an operating agreement will help maintain harmony between owners, who will know that the procedures for running the business have been set down on paper.

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