An operating agreement is a contract between the members of an LLC. This contract delineates the obligations, financial rights, and duties of members and managers (if any). This contract is required in many states, but New Mexico does not require one. But while it's not required, is it still a good idea to have a simple LLC operating agreement for your business?
The answer depends on how you see things. For single-member companies, one is sometimes needed, but you should be mindful about what it says. In other cases, like multi-member or professionally managed LLCs, it could be vitally important to have a multi-member LLC operating agreement.
When you use us to form your LLC, we can help you create an operating agreement that fits your needs. The file can be downloaded as a Word document, so you can make any edits to your New Mexico LLC operating agreement that you'd like. Note that the operating agreement is an internal document, as New Mexico LLCs are private and anonymous. Only your registered agent records ownership information.
Benefits of a Single-Member LLC Operating Agreement
Some people think that a single-member LLC operating agreement isn't really important because it's a contract with yourself, which means that it could be disregarded or amended at any time. We think that this document could be helpful in some cases, and we supply Single Member LLC agreements for two main reasons: because banks often ask for them and because they allow you to outline what will happen to the business upon your death.
Transfer on Death Provision
Many members of an LLC would like their relatives to inherit the company or a part of it when they die, but not all owners of LLCs have a plan to transfer their ownership. With a single-member LLC operating agreement, you ensure a simple transition in case of your death. This is just one of the advantages of an LLC when compared to a sole proprietorship.
This transferring process could be done in a simple way with a trust or a transfer testament, or it could be done through probate. If you decide on a probated process, your heirs will not have control of the account and it will take some time and extra money. It might sound grim, but one of the biggest favors that you could do for your relatives is planning your estate before you die to ensure that they will inherit your LLC while avoiding probate.
Banks Often Ask for Them
The other reason why we provide a New Mexico operating agreement for single-member LLCs is that it's sometimes required when you set up a bank account. You will notice the single-member agreement is not as populated as the multi-member agreements are. This is because you do not require protection from yourself. If you add a member, then we will happily provide you with a new operating agreement.
What Does a Multi-Member LLC Operating Agreement Do?
An operating agreement for a multi-member LLC can define each person's share of the business, the powers of management, limits on transfers of ownership, and protections for sensitive data. There is no good reason to not sign an operating agreement if you have a multi-member LLC. In fact, we suggest that members sign one and keep a copy in the cloud for safekeeping.
Declare Ownership Percentages
New Mexico LLCs don't have specific capital contributions required. This means that all of the members must agree in writing to their contributions; you'll be left with no recourse later on if they don't.
Define Management's Powers
A New Mexico LLC operating agreement sets which actions a manager has to seek member approval for. Some of the most popular examples of these types of situations include when a manager is prevented from assuming loans, buying or selling assets, or signing contracts.
Protect Sensitive Information
If one of the members does not sign an agreement limiting disclosure, they could share any information with as many people as they want.
Restrict Ownership Changes
There are some real reasons to limit the ability the other members have to sell their interests. For instance, if your partner sells their stake without your permission or acknowledgment to a third party, that person can now vote and has other rights to "your" company.
Set Up Your New Mexico LLC With Us Today
Operating agreements are a really important part of forming your LLC and great tools to ensure an agreeable atmosphere between the members. They also ensure a planned transition to your relatives or loved ones in case you pass away or want to dissolve a New Mexico LLC. In our experience, we have noticed that if this contract is not signed in the first 30 days, it will never be signed, which could be a really big problem in the future. But when you work with Cindy's New Mexico LLC Formation Service, there's no reason not to have an LLC operating agreement: The cost is free! This is just one benefit of our New Mexico LLC formation service, along with the LLC tax benefits you'll be able to take advantage of. We also offer free mail forwarding, and we can assist you with establishing a virtual office, too. Contact us today to see what we can do for you!