What is an LLC partnership agreement?
Here’s what you need to know about limited liability companies.
A limited liability company, better known as an LLC, is a type of business in the United States wherein owners are not personally liable for the company’s debt and do not pay taxes. Instead, profits and losses are passed through to members, who claim those profits on their personal tax returns. An LLC can have one or more owners (members), each of whom has equal ownership of the business. You can think of LLCs like a hybrid between a corporation and a partnership: Like a corporation, LLCs shield their owners from liability should the business fail. Like a partnership, LLCs pass through profits so that they’re taxed as part of members’ personal incomes.
An LLC is a great structure for a small business: inexpensive, easy to form, and simple to maintain. Learn how to establish a formal LLC partnership with an LLC partnership agreement.
Considerations for your LLC partnership agreement.
An LLC partnership agreement is a legal document that members write to set the rules for operating their LLC and to protect their legal rights as members. When you are starting an LLC, make sure your agreement includes these elements:
- Basic information about your company: This includes the LLC’s name, address, statement of intent, statement of purpose, income tax election, and LLC terms.
- Member ownership interest: This outlines how much of the business each member owns. Usually this is done as a percentage of the total funds invested in the business.
- Profit and loss allocations: These dictate how company profits and losses will be split among members.
- LLC management structure: Will your LLC be managed by its members? Or by third-party managers? Your agreement should clearly define each person’s role and responsibility.
- Meetings and voting procedures: These outline how decisions will be made.