Who Should Have an Operating Agreement?
Forming a limited liability company (LLC) offers business owners the key advantage of protecting personal assets from business liabilities. But that protection is only as adequate as the structure supporting it. One of the most important—and often overlooked—documents for an LLC is the Operating Agreement.
While Colorado law does not require LLCs to adopt a written operating agreement, it is highly recommended that they do so to protect the interests of all members and ensure smooth business operations. This document serves as a legally binding agreement between LLC members and sets a company’s rules and organizational structure. Your operating agreement should outline the important aspects of your company, such as membership interest, voting, allocation of profits, and even dissolution (if necessary).
What is Included?
Although operating agreements can be tailored to the unique needs of your business, most include the following provisions:
- Business purpose and scope of activities
- Initial capital contributions by members
- Ownership percentages and membership interest
- Allocation of profits, losses, and distributions
- Management structure and decision-making authority
- Voting rules and procedures
- Bookkeeping and financial recordkeeping
- Rules for admitting new members or transferring interest
- Member compensation and duties
- Procedures for dissolution or exit events
Why Every Colorado LLC Needs an Operating Agreement
Even single-member LLCs benefit from having an operating agreement. Here are just a few reasons why:
Legal protection: Establishes the separation between the business and its owners, reinforcing limited liability protection.
Clear ownership structure: An operating agreement defines each member’s percentage of ownership and contributions to prevent disputes.
Rulemaking: Outlines responsibilities, voting rights, and authority to ensure smooth operations.
Dispute resolution. It includes procedures for handling disagreements and reducing costly legal battles.
Flexibility: Unlike default state laws, members can customize the business structure.
Succession planning: An operating agreement guides what happens if a member leaves, passes away, or sells their stake.
Credibility: Banks, investors, and partners may require an operating agreement before doing business with the LLC.
Our Business Law Attorneys Can Help You Grow
An operating agreement is more than a formality—it is a foundational document that protects your investment, relationships, and long-term strategy. Legal guidance is key, whether you’re forming a new LLC or revisiting an outdated agreement.
The Colorado commercial and business law attorneys at Brown Dunning Walker Fein Drusch, PC can help you understand your business’s needs. With decades of combined experience in commercial and business law, we help our clients navigate structure, compliance, and growth with confidence. Schedule a consultation today by calling (303) 329-3363 or contacting us online.