You can form an Ohio limited liability company by filing articles of organization with the Secretary of State. Ohio does not require an operating agreement, which is why so many companies do not have one until there is a dispute.
What happens without one
The default rules in Ohio's LLC statute govern your company. Those rules were written for every business in the state, not for yours, and they may not match what the owners assumed when they shook hands.
What a good agreement covers
- Who manages the company and who can sign for it
- What each owner contributed and what each owner owns
- When profits are distributed, and whether distributions are required
- What happens when an owner leaves, dies, divorces or becomes disabled
- How a departing owner's interest is valued and paid for
- Whether an owner can transfer an interest, and to whom
- How a deadlock between equal owners is broken
Single-member companies need one too
An operating agreement helps show that the company is separate from its owner, which supports the liability protection that was the reason for forming it. Banks and lenders routinely ask for one. It can also say who has authority to run the business if the owner dies or becomes incapacitated, which is the moment a business without a plan stops operating.
When to update it
Review the agreement when an owner is added or leaves, when the company borrows a significant amount, when the business changes direction, and whenever an owner's estate plan changes.
We prepare operating agreements for new companies and for companies that have been operating without one. Call our Middletown or Monroe office to get started.