An operating agreement is a contract that involves 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. While not required, is it still a good idea to have one?
The answer depends on how you see things. For single member companies, sometimes one is needed, but you should be mindful about what it says. In other cases, like multi-member or professionally managed LLCs, this document is vitally important.
When you use us to form your LLC, we can provide an operating agreement for you. It can be downloaded as a word document and you may make any edits you like. Note, the operating agreement is an internal document as New Mexico LLCs are anonymous. Only your registered agent records ownership information.
Some people think that this document isn't really important because its 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 it to you for two main reasons:
Many members of an LLC would like their relatives to inherit the company or a part of it when they die, unfortunately not all the owners of this LLCs have a plan to transfer their ownership. With this provision you ensure a transition in case of your death.
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 for 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 to your relatives is planning your estate before you die to ensure they will inherit your LLC while avoiding probate.
The other reason why we provide this document is because sometimes it is required for banks and other institutions. You will notice the single member agreement is not as populated as the multi-member agreements are.
This is because you do not require protections from yourself. If you add a member, then we will happily provide you with a new operating agreement. Learn more about opening a bank account here.
There is no good reason to not sign one. In fact we suggest members sign one and keep a copy in the cloud for safekeeping. This agreement is really useful in these cases:
New Mexico LLCs don't have specific capital contributions required, this means that all the members must agree in writing to their contributions, or you'll be left with no recourse if they don't.
These operating agreements set which actions a manager has to seek member approval for. Some of the most popular examples of these type of situations is when a manager is prevented from assuming loans buying or selling assets, or even signing contracts.
If one of the members does not sign an agreement limiting disclosure they could share any information with as many people as they want.
There are some real reasons to limit the ability the other members have to sell their interests. In this way you will avoid some typical cases like if your partner sells his stake without your permission or acknowledgement to a third party which can now vote and has other rights over “your” company.
Operating agreements are a really important part of forming your LLC, and they are a really great tool to ensure an agreeable atmosphere between the members. Not only that, but at the same time it ensures a planned transition to your relatives or loved ones in case you pass away. In our experience we have noticed that if this contract is not signed in the first 30 days it will never be signed and it could be a really big problem in the future.