DOES AN LLC NEED AN OPERATING AGREEMENT?
In connection with the representation of financial institutions, we see a lot of “do it yourselfers”. By that I mean folks that have undertaken to form their own LLC by complying with the minimal filing requirements to establish the entity. However, many of these fail to prepare a formal operating agreement and this creates many challenges for lenders and other third parties dealing with the business.
Under the Indiana Statute, an operating agreement is not required. So, it would not be fair to say that the failure to have one is an illegal practice. But it is decidedly unwise. In addition to all of the reasons why the owners of the business should want to have an operating agreement to govern their business, third parties have a very difficult time determining who are the owners of a business and the appropriate authorizing parties in the absence of an operating agreement. It is not unusual for lenders to require an operating agreement to be created prior to closing a significant financing. It would also be very difficult, if not impossible, to complete a sale of the business without an operating agreement being in place.
Apart from concerns that third parties might have, the owners in the business have little guidance under our statute as to how the business is to be governed, what rights the owners may have, and what happens when an owner wants to or needs to exit the business. These issues should be addressed in a well-crafted operating agreement.