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Idaho Business Law: You Need an Operating Agreement for Your Pocatello LLC

By Lane V. Erickson, Pocatello Business Attorney

Congratulations on setting up your new Pocatello limited liability company! It’s exciting when we have energetic clients come in seeking help to accomplish their new business ideas! Our goal in helping our business clients is to guide them through the process of not only creating their business but also giving them counsel and advice about the things that they should do to avoid problems in their business down the road.

At the Racine law office, our team of Pocatello business lawyers includes partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Our team of attorneys have the experience, skill, and knowledge, to provide sound legal advice to each of our business clients. Whether it is creating a small business, or working through the intricacies of negotiating contracts, or helping clients when something goes wrong, we have helped numerous Pocatello business clients make sound decisions that have helped their businesses succeed. We are confident we can help you too.

One of the areas we help our small business clients the most is in getting an operating agreement set up for their LLC. An operating agreement is a contract between all of the current owners, and any new owners who may come into the business at a later time while the business is operating. As a contract, the operating agreement is binding on every person who signs it. The operating agreement is designed to act as a contract in order to accomplish several specific things which are the focus of this article.

Keep in mind that if you don’t create your own written operating agreement, then you have no choice but to operate under the terms and conditions of the default operating agreement that is established by Idaho law. These laws are found under Idaho Code §§ 30-25-101 et seq. Specifically, Idaho Code §§ 30-25-104, 105, 106, and 107 control what the operating agreement is and what it does. By having your own customized written operating agreement you can avoid the default language and obligations that you would otherwise have under Idaho law.

While this article is not designed to be exhaustive, it does provide a list of some of the very basic things that an operating agreement controls when it comes to a Pocatello LLC. If you have questions about your operating agreement, or the need for an operating agreement, we suggest you contact a qualified Pocatello business lawyer.

Establish Owners of Business

The first, and perhaps most important thing that an operating agreement does is establish who the owners of the business are. This is done specifically by name and also by a percentage of ownership. The operating agreement can be changed or amended if new owners come in or some of the original owners leave the business. However, the written operating agreement is the first and most basic document used to establish who the owners actually are.

Additionally, the operating agreement controls how new owners can come into the business. The operating agreement will spell out whether this is done by a vote, or whether another owner has the authority to allow a new owner to come in. Additionally, the operating agreement can establish if there is a buy-in price in order for a person to become an owner of the LLC.

Establish How Business Will be Managed

The second thing that an operating agreement does is also very important. This is to establish how the business will be managed. There are a number of options available to a business on how this is to be done. However, whatever is chosen needs to be put into the written operating agreement so that it does become part of the binding contractual terms between the owners of the business. It should be easy to understand so it is easy to follow.

Some of the options would include naming one person who would act as the manager for the business. Alternatively there could be multiple managers who manage the day-to-day operations of the business. Additionally, all the owners could be included as the managers of the business if need be. Mostly this will be controlled by the operational structure of the business itself.

For instance, let’s suppose that three friends get together to start an LLC for a car wash business. They own one car wash location. In this instance, the owners could say that one of the owners acts as the manager of the LLC. This may be the wisest structure for a small business when there are not very many employees. The reason for this is that someone needs to be on site to handle the day-to-day operations of the business.

However, let’s suppose that rather than one car wash the LLC owns 50 car wash locations. In this instance, it’s more likely that there will be an onsite manager at each location that would be an employee and not an owner. Under this structure the operating agreement may spell out that the three members of the LLC are also the three managers of the LLC. They may get together from time to time to talk about the overall structure of the business but not necessarily deal with the day-to-day operations.

Establish How Ownership Interests can and Cannot be Transferred

Finally, an operating agreement is used to spell out how current ownership interests can and cannot be transferred by the owners. This is designed to provide protection to the other owners in the business who may desire to continue to operate when a circumstance occurs to one of the other owners. Such circumstances could include a death, divorce, disability, financial bankruptcy or other financial issue, or simply that the owner decides they no longer want to be involved in the business.

The written operating agreement will describe the process that happens if any of these things occur. Again, the reason that this is spelled out is so that the death of one of the owners doesn’t necessarily mean that the business ceases to operate. It also doesn’t mean that the ownership interest of the person who passed away no longer exists. Rather, it protects both the ownership interest and the operation of the business.

We have helped numerous Pocatello business clients create their own LLC, and then create the written operating agreement which helps manage the structure and operation of the business. If you have questions about your own Pocatello LLC, or your written operating agreement we are confident we can help you too.

Enlist a Pocatello Business Attorney to Help You

Our team of Pocatello business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Pocatello business problems.

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