LLC – Bergmann Law LLC

What is an Operating Agreement and Why Do I Need One?

Posted by calgdasilvaon February 22, 2025in Blog Posts, Business StructureLeave a comment

Why Your Limited Liability Company (LLC) Needs an Operating Agreement

Starting a business is an exciting venture, and forming a Limited Liability Company (LLC) is one of the most popular ways to structure a small business. While an LLC provides flexibility and liability protection, many business owners overlook one critical document: the operating agreement. Even if your state doesn’t legally require it, and New Jersey does not, having an operating agreement is essential to protect your business and ensure smooth operations. Here’s why your LLC needs one.

1. Defines Ownership and Management Structure

An operating agreement lays out the ownership percentages of each member and the management structure of the company. Whether your LLC is single-member or multi-member, this document clarifies roles and responsibilities, helping to prevent misunderstandings and conflicts down the line. Clearly defined roles and responsibilities means that disagreement and dispute are less likely as your business grows.

2. Protects Your Limited Liability Status

One of the main benefits of forming an LLC is the limited liability protection it offers its owners. However, without an operating agreement, courts may view your business as a sole proprietorship or partnership, exposing your personal assets to legal claims and debts. A well-drafted operating agreement reinforces the separation between your business and personal finances, strengthening your liability protection.

3. Prevents State Default Rules from Applying

Each state has default rules that govern LLCs without operating agreements. These one-size-fits-all regulations may not align with how you want to run your business. By drafting an operating agreement, you can customize provisions related to profit distribution, voting rights, and dispute resolution, ensuring they align with your business goals. This is, in my opinion, the single most important reason to have an operating agreement. Do not allow your business to be governed by default rules and regulations. Govern your business in the way YOU best see fit.

4. Clarifies Financial and Operational Decisions

Without a written agreement, decisions regarding profits, losses, capital contributions, and distributions could lead to disagreements among members. An operating agreement clearly defines these financial aspects, reducing the chances of disputes and providing a clear process for handling financial matters.

5. Facilitates Business Continuity and Succession Planning

What happens if a member decides to leave the business, passes away, or becomes incapacitated? An operating agreement outlines the process for transferring ownership, buying out a departing member, or dissolving the business if necessary. This ensures stability and continuity, preventing legal and financial headaches in the future.

6. Enhances Credibility with Banks and Investors

Financial institutions and potential investors often require an operating agreement before they agree to lend money or invest in your business. A well-structured agreement demonstrates professionalism and foresight, making your LLC more attractive to outside funding sources.

7. Establishes Conflict Resolution Procedures

Disagreements are inevitable in any business. An operating agreement provides a framework for resolving disputes among members, potentially avoiding costly and time-consuming litigation. Whether through mediation, arbitration, or a voting system, having a predefined conflict resolution process is invaluable.

Conclusion

While an operating agreement may not be legally required in every state, it is a crucial document that provides structure, legal protection, and clarity for your LLC. Investing the time and effort to create one now can prevent significant problems in the future, allowing you to focus on growing your business with confidence.

If you haven’t drafted an operating agreement for your LLC, consider consulting Bergmann Law, to ensure your agreement meets your specific needs. Your business’s success and protection depend on it!

Forming a new company? Read this first…

Posted by calgdasilvaon October 31, 2017October 31, 2017in Blog PostsLeave a comment

It takes a unique person to strike out on their own and no small amount of risk to dive head first into a new endeavour. Helping new business owners is one of the best parts of what we do here at Bergmann Law because starting your business out on the right foot is so important.

Thanks to the internet, it has never been easier or faster to get your business up and running. The IRS and many state governments have online portals allowing you can register your new company with the state and federal governments and eliminating eliminates many of the old delays in formation like long processing times, postage fees, and delays as old copy files were shuffled from desk to desk.

Unfortunately, these new electronic filing systems make it easier than ever to make a mistake. A mistake that can be costly to unwind and cost you precious lost time.

Since the registrations have come online, an increasing number of clients reach out after attempting to set up their new business online and instead are left with a partially formed company. Clients who believe the new entity is registered, when it is not or worse, not reserving the intended name only to find out it is not available after paying a web developer for a website. Clients who were once hesitant to spend the money for help with initial set up always spend much more to undo, redo, or fix incorrectly filed paperwork.

For example, a client came to us with a registered EIN, the federal employer identification number, but no business formation documents. It turned out the name was not available in New Jersey meaning the business formation could not be completed. Instead we started over with a new name and EIN as well as work with the IRS to retire the unusable EIN.

Another client created an LLC in New Jersey, but did not register for an EIN and did not register with the state for tax purposes. To complete the process, phone calls to the state to confirm what part of the process was complete and what wasn’t had to be made and the filed forms had to be updated to include proper information that the client missed.

Save yourself both time and money. Give us a call to help you set up your business quickly and painlessly- just as it should be!

Why Would I Use a Lawyer to Form an LLC?

Posted by calgdasilvaon November 13, 2015in Blog PostsLeave a comment

Your accountant has recommended that you operate your business in the form on an LLC. You go online and see the New Jersey state website makes filing the formation documents online very easy. So why bother with an attorney?

Well, if you are both familiar and comfortable with the New Jersey Revised Uniform Limited Liability Company Act (“RULLCA”) then by all means, plug in your name, address and credit card number and save yourself a few dollars. However, if you are not familiar with the revised statute then perhaps a consultation and creating a business that works best for you is the way to go.

The most significant difference between forming your LLC on your own and forming your LLC in consultation with counsel is that on your own, without an operating agreement, your LLC will be governed by the existing statute, or RULLCA. For instance, under RULLCA, an LLC’s operating agreement may eliminate or limit a member’s or manager’s liability to the LLC and members for money damages, except for (a) breach of the duty of loyalty; (b) a financial benefit received by the member or manager to which the member or manager is not entitled; (c) a breach of a member’s duty to not consent to or receive any distribution from the LLC if the LLC is insolvent or would become insolvent as a result of the distribution; (d) intentional infliction of harm on the LLC or a member; or (e) an intentional violation of criminal law.

Having an attorney form the LLC and help you draft your operating agreement means you can set up your business exactly as you want it, rather than having to use the default rules of the RULLCA. LLC’s offer tax and liability protection whether or not you form with the help of an attorney, but working with a professional business firm maximizes those protections and makes formation costs well worth the price tag. Questions? Call Bergmann & Good. We are here to help.