Sarah Eskreis
You have chosen your ideal entity type, a Limited Liability Company (LLC), so what’s next? Once you have filed your Certificate of Organization, you must consider how you want your LLC to be structured and governed. This can be done in one of two ways. You can choose to default to the Massachusetts Limited Liability Company Act (Act) or you can create an operating agreement. An operating agreement is a document that helps members or managers customize the terms and functions of the LLC to suit their needs. The operating agreement is a contract that binds the LLC’s members and managers.
In Massachusetts, an operating agreement is not required. However, when a personalized operating agreement is not created your LLC will automatically fall under the Act. See generally Mass. Gen. Laws ch. 156C. There may be particular circumstances under the Act that you do not want your LLC to be subject to. For example, in an operating agreement a member can resign from the LLC as specified in the operating agreement. Your LLC could specify in the operating agreement that the individual needs to provide notice that details the reason for resignation and to provide the name of a potential replacement member for the other members’ consideration both electronically and through United States mail. However, if your LLC does not have an operating agreement, then the resignation of a member is governed by the Act. Mass. Gen. Laws ch. 156C, § 36. Under the Act, a member may resign with no less than six months’ prior written notice to the LLC and each of its members and managers. Id. The Act is not as explicit in the form of notice that the resigning member must provide.
The Northeastern University School of Law Community Business Clinic highly recommends creating an operating agreement for your LLC. An operating agreement enables you to choose exactly how your LLC will be run. The agreement also captures the interests of each member and defines what is required of each member. Operating agreements will allow you to have peace of mind and to customize your LLC to your liking.