An LLC operating agreement describes how the company and its owners will work together. It should address control, money, ownership changes and the decisions that become difficult when people disagree. Filing the LLC’s formation documents does not settle those questions.
For Illinois and Missouri business owners, the most useful starting point is a conversation about the actual arrangement: who is contributing what, who will do the work and what each person expects in return.
Begin with the owners’ deal
Suppose two people each own half of a new company. One contributes startup cash; the other expects to run the business full time. “We are 50/50 partners” leaves important questions unanswered.
Will the working owner receive compensation before distributions? Does the cash contribution create repayment rights? What happens if more money is needed? Can either owner commit the company to a major expense?
An operating agreement should reflect those decisions rather than leave the owners to infer them from a percentage. The example is hypothetical, but the distinction is practical: ownership, compensation and decision-making authority are separate subjects.
Seven questions to work through
1. What is each owner contributing?
Identify initial contributions and whether later funding is expected. Distinguish a capital contribution from a loan. Address what happens if an owner cannot or will not contribute additional funds.
2. Who makes ordinary decisions?
Clarify day-to-day authority. Identify who may sign contracts, hire service providers and access company accounts, and how the company will communicate those permissions to others.
3. Which decisions need additional approval?
Borrowing, admitting an owner, selling major assets or changing the business may deserve a different approval process from routine operations. Match the approval rules to the size and risk of the decision.
4. How will owners receive money?
Discuss compensation for services, distributions, reserves and tax-related cash needs. Coordinate the legal agreement with the tax treatment your advisers expect. Avoid assuming that an ownership percentage resolves every payment question.
5. What happens when the owners disagree?
An equal ownership split can leave a company unable to decide. Discuss a workable escalation or deadlock process, including its cost and whether a proposed buyout mechanism would be realistic for both owners.
6. Can an owner transfer an interest or leave?
Address transfer restrictions, approvals and any purchase rights. If a buyout is contemplated, discuss valuation, payment terms and how it would be funded. A price formula that no longer fits the business can create its own dispute.
7. What happens at disability or death?
Coordinate the business agreement with each owner’s estate plan. Consider who should manage, who should receive economic benefits and whether a purchase of the interest is intended. Do not assume those are the same person or the same event.
Illinois and Missouri require their own legal review
Do not assume an agreement prepared for another state fits your company. Governing law, nonwaivable rules and the wording of the agreement matter.
Missouri’s statute requires members to adopt an operating agreement and expressly addresses subjects such as business conduct, management, voting, transfers, allocations and tax elections. The Secretary of State explains that it does not accept the operating agreement for filing with the formation document. Keep the internal agreement and the public filing process distinct. RSMo 347.081; Missouri Secretary of State FAQs.
For an Illinois LLC, the agreement likewise deserves an Illinois-specific review rather than an assumption that Missouri requirements or a generic online form apply unchanged.
A single-owner LLC still needs clear records
Without a co-owner, the practical questions change. Authority, succession, ownership records and the relationship between personal and business affairs still deserve attention. If someone must step in during incapacity or after death, they should not have to reconstruct how the business was meant to operate.
Read our guide to common LLC mistakes for other issues to review.
When should you revisit the agreement?
Review it before adding an owner, changing ownership percentages, making significant capital contributions, electing different tax treatment or preparing for financing or a sale. Also revisit it when the owners’ roles or succession plans change.
The useful question is whether the signed agreement still describes the business you are running.
Discuss the agreement before it becomes a dispute
A.H.Steinmetz, Ltd. advises business owners throughout Illinois and Missouri, with virtual appointments statewide. We can discuss a new agreement or review an existing company’s documents under an agreed scope.
Explore business formation and entity selection or ongoing business counsel, and schedule a free 15-minute introductory call.