Course Content
Your Loan Packaging Course
Learn to craft a persuasive loan package to secure financing. This concise course covers essential financial documents, integrating your business plan, understanding credit scores, and presenting your business effectively to meet lender expectations. Gain insights into legal compliance, submission tips, and strategies for engaging with lenders, all aimed at showcasing your business's growth potential.
0/6
The Business Entity Course
Navigate the complexities of choosing the right business structure with "The Business Entity Course." This focused course demystifies the process of selecting an entity type—such as LLC, corporation, or partnership—that aligns with your business goals, legal protections, and tax implications. Learn about the advantages and disadvantages of each entity type, the impact on your personal liability, and how your choice affects funding opportunities. This course provides the foundational knowledge needed to make an informed decision on structuring your business for success.
0/11
Personal Credit Enhancement Course 101
Boost your financial credibility with the "Personal Credit Enhancement Course 101." This essential course offers strategies to improve your personal credit score, a critical factor in securing business financing. Dive into understanding credit reports, identifying and rectifying errors, and employing tactics to enhance creditworthiness. Learn how personal credit impacts business funding opportunities and master practical steps to elevate your score for better loan terms and access to capital. This course is your guide to building a stronger financial foundation for both personal and business growth.
0/10
Business Credit 101
Unlock the potential of your business with "Business Credit 101," a course designed to guide entrepreneurs through the intricacies of establishing and managing business credit. Discover how to create a robust business credit profile that lenders trust, understand the key differences between personal and business credit, and learn strategies for building creditworthiness. This course covers the essentials of business credit reporting agencies, how to secure credit lines, and the impact of credit on your business's funding capabilities. Equip yourself with the knowledge to leverage business credit as a powerful tool for growth and financial stability.
0/11
A Bankable Business Plan Course
Transform your vision into a viable financial strategy with "A Bankable Business Plan Course." This comprehensive course guides you through crafting a business plan that not only articulates your business model and market potential but also appeals to investors and lenders. Learn to effectively communicate your business's value proposition, operational plan, and financial projections. Discover the components that make a business plan compelling, including market analysis, competitive edge, and financial forecasts. By the end of this course, you'll have a polished, professional business plan ready to open doors to funding and growth opportunities.
0/14
Lender Strategies and Tips Course
Navigate the lending landscape with confidence through the "Lender Strategies and Tips Course." This insightful course equips you with the knowledge to approach lenders effectively, understand their criteria, and improve your chances of loan approval. Delve into the nuances of different financing options, learn how to present your business in the best light, and uncover the secrets to successful loan negotiations. From building strong relationships with banks to preparing for common lender concerns, this course offers practical advice and strategies to secure the financing your business needs to thrive.
0/8
Funding Source Overview
Explore the spectrum of funding opportunities with the "Funding Source Overview" course. This essential guide introduces you to the diverse world of business financing, from traditional bank loans and SBA loans to innovative online lending and venture capital. Understand the pros and cons of each funding source, eligibility criteria, and how to align them with your business needs. Gain insights into navigating the application process, optimizing your chances for approval, and strategically choosing the right mix of financing to fuel your business growth. This course is your roadmap to identifying and securing the optimal funding sources for your enterprise.
0/8
Become Lender Ready
About Lesson

Why You Need an LLC Operating Agreement

 
An LLC (limited liability company) operating agreement allows you to structure your financial and working relationships with your co-owners in a way that suits your business. In your operating agreement, you and your co-owners establish each owner’s percentage of ownership in the LLC, his or her share of profits (or losses), his or her rights and responsibilities, and what will happen to the business if one of you leaves.
 
Why You Need an Operating Agreement
 
While many states do not legally require your LLC to have an operating agreement, it’s foolish to run an LLC without one, even if you’re the sole owner of your company.
 
An operating agreement will help you guard your limited liability status, head off financial and management misunderstandings, and make sure your business is governed by your own rules — not default rules created by your state.
 
Protecting Your Limited Liability Status The main reason to make an operating agreement is to help ensure that courts will respect your limited personal liability. This is particularly key in a one-person LLC where, without the formality of an agreement, the LLC will look a lot like a sole proprietorship. Having a formal written operating agreement will lend credibility to your LLC’s separate existence.
 
Defining Financial and Management Structure
Co-owned LLCs need to document their profit-sharing and decision-making protocols as well as their procedures for handling the departure and addition of members. Without an operating agreement, you and your co-owners will be ill-equipped to settle misunderstandings over finances and management. What’s more, your LLC will be subject to the default operating rules created by your state law.
 
Overriding State Default Rules
Each state has laws that set out basic operating rules for LLCs, some of which will govern your business unless your operating agreement says otherwise. (These are called “default rules.”)
 
Many states, for example, have a default rule that requires owners to divide up LLC profits and losses equally, regardless of each member’s investment in the business. If you and your co-owners did not invest equal amounts in the LLC, you probably don’t want to allocate profits equally. To avoid this, your operating agreement must spell out how you and your co-owners will split profits and losses.
 
By writing an operating agreement, you can choose the rules that will govern your LLC’s inner workings, rather than having to follow default rules that may or may not be right for your LLC. What to Include in Your Operating Agreement There’s a host of issues you must cover in your LLC operating agreement, some of which will depend on your business’s particular situation and needs. Most operating agreements include the following:
     
      • the members’ percentage interests in the LLC
      • the members’ rights and responsibilities
      • the members’ voting powers
      • how profits and losses will be allocated
      • how the LLC will be managed
      • rules for holding meetings and taking votes, and
      • buyout, or buy-sell, provisions, which determine what happens when a member wants to sell his or her interest, dies, or becomes disabled. While these items may seem fairly straightforward, each requires you to make some important decisions, which you should spell out in your operating agreement.
 
Percentages of Ownership
The owners of an LLC ordinarily make financial contributions of cash, property, or services to the business to get it started. In return, each LLC member gets a percentage of ownership in the assets of the LLC. Members usually receive ownership percentages in proportion to their contributions of capital, but LLC members are free to divide up ownership in any way they wish. These contributions and percentage interests are an important part of your operating agreement.
 
Distributive Shares
In addition to receiving ownership interests in exchange for their contributions of capital, LLC owners also receive shares of the LLC’s profits and losses, called “distributive shares.” Most often, operating agreements provide that each owner’s distributive share corresponds to his or her percentage of ownership in the LLC. For example, because Tony owns only 35% of his LLC, he receives just 35% of its profits and losses. Najate, on the other hand, is entitled to 65% of the LLC’s profits and losses because she owns 65% of the business. (If your LLC wants to assign distributive shares that aren’t in proportion to the owners’ percentage interests in the LLC, you’ll have to follow rules for “special allocations.” 
 
Distributions of Profits and Losses In addition to defining each owner’s distributive share, your operating agreement should answer these questions:
     
     • How much — if any — of the LLC’s allocated profits (the members’ distributive shares) must be distributed to LLC members each year?
      • Can members expect the LLC to pay them at least enough to cover the income taxes they’ll owe on each year’s allocation of LLC profits? (An LLC owner, like a partner in a partnership, has to pay income taxes on the full amount of profits that are “allocated” to him or her, not just on profits that are actually paid out. When profits are plowed back into the business instead of being paid out, they are still treated as taxable income to the owners, in the proportions allocated.)
      • Will distributions of profits be made regularly or are the owners entitled to draw at will from the profits of the business?
 
Because you and your co-owners may have different financial needs and marginal tax rates (tax brackets), the allocation of profits and losses is an area to which you should pay particular attention. You may want to run the allocation part of your operating agreement by a tax professional, to make sure it achieves the overall results you had in mind.
 
Voting Rights
While most LLC management decisions are made informally, sometimes a decision is so important or controversial that a formal vote is necessary. There are two ways to split voting power among LLC members:
 
     • each member’s voting power corresponds to his or her percentage interest in the business, or
     • each member gets one vote — called “per capita” voting.
 
Most LLCs mete out votes in proportion to the members’ ownership interests. Whichever method you choose, make sure your operating agreement specifies how much voting power each member has, as well as whether a majority of the votes or a unanimous decision will be required to resolve an issue.
 
Ownership Transitions
Many new business owners neglect to think about what will happen if one owner retires, dies, or decides to sell the owner’s interest in the company. Operating agreements should include a buyout scheme — rules for what will happen when a member leaves the LLC for any reason. For more information, see Nolo’s article Plan Ahead for LLC Ownership Changes.
 
How to Create an Operating Agreement
Obviously, you’ll need help beyond this article to make your own operating agreement. There are many sources for blank or sample LLC operating agreements, but if you would like us to create one for you, please reach out to your Account Executive.