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The Operating Agreement is the legal document that explains the structure of your LLC.  At the very least, it formalizes the name of your company, lists the members and each person’s contribution, outlines the roles and voting rights, and lays out how to add or remove members.  Most small business owners, especially gym owners, shrug off the need for an operating agreement because most don’t understand the power of this document. Here are 4 other reasons you need an Operating Agreement.

But, What If You Die?

The #1 reason you need an operation agreement is to help determine what happens to your business when you die.  

You filed your LLC and opened your business.  Congratulations.  Your life is now dedicated to running and growing your business.  The future of your business is unknown, but one thing is for sure.  At some point, you will die.  This may sound morbid, but it is just about the only future event you can guarantee.  

Here’s the problem, what will happen to your business when you die?  If you are the only person who owns your LLC, and you die, no one will be able to take control of you company and make any decisions until all of your assets pass through what is called the probate of your estate.  It is a legal process that could take YEARS to complete.  In the meantime, your company is hanging out there without any formal control.  What is happening to your taxes?  What is happening to your profit distributions?  What if someone needs to shut down your company?  

The Operating Agreement Can Help

Alternatively, you can prevent this problem by using your Operating Agreement.  Some states have specific laws about passing ownership of your business without going through probate.  However, at the very least, you can use your Operating Agreement to appoint someone into full economic rights and management authority at the moment you die. That is one of the only ways you can make sure your company continues without a hitch if the worst case scenario happens.  

We are here to educate you on the complex legal issues that impact your business.  This is a big one.  Do you have an Operating Agreement?  Does your Operating Agreement have a death clause? Companies like Two Brain Business help you set up your business to run day-to-day if something happens to you. But, who is going to manage your company?

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