Why should a Connecticut LLC have an operating agreement?
A Connecticut LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.
Connecticut Law § 34-243d-f describes the powers and limitations of an operating agreement, but doesn’t require LLCs to adopt one. However, your operating agreement may be your most important internal document. Here’s why:
1. Your operating agreement proves you own your LLC.
Though your Connecticut Certificate of Organization serves as official documentation for your LLC, you’re only required to list the name of one member. In this case, only one person would be able to use your Certificate of Organization as proof of ownership.
Your operating agreement, however, should include the names of all owners, which means all members of your LLC can use it to show ownership. This is important when it comes to certain tasks, like opening a business bank account or renting property.
2. An operating agreement can help reinforce your limited liability status.
To benefit from limited liability status, business owners have to be able to show that their LLC is its own legal entity separate from its owners. One way to do this is to open and use a separate bank account for your business. Another way is to create (and follow) an operating agreement.
3. An operating agreement can help head off misunderstandings.
Disagreements and misunderstandings are unavoidable. But an operating agreement gives your business an agreed-upon set of rules and procedures, which can prevent minor misunderstandings from flaring up into big problems down the line.
4. An operating agreement can override Connecticut’s default laws.
Without an operating agreement, your LLC will automatically be governed by Connecticut’s Uniform Limited Liability Company Act. The problem is, Connecticut’s default laws might not be right for your business. Creating an operating agreement allows you to run your LLC in a way that—within the parameters of the law—works for your company.
Connecticut Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of Styslinger v Brewster Park, LLC where a member’s divorce almost resulted in the dissolution of the LLC, contrary to the wishes of the other remaining member. While the statutes and courts were able to ultimately preserve the life and operation of the LLC, statutes and court interpretations can evolve and change, which may not always align with members’ purposes in operating the LLC. To insulate an LLC from litigation and distractions from normal business operations, it is an excellent idea for the members to distill their intent into writing, such as an operating agreement.”
What is included in a Connecticut operating agreement?
Technically, your Connecticut operating agreement can include anything not prohibited by Connecticut’s Uniform Limited Liability Company Act. However, a strong operating agreement is essential, and should include information about:
- Company activities and affairs
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures