Your operating agreement is one of the most important legal documents you have. It outlines how your business is run, how decisions are made, and what happens if there are any disputes or changes in ownership. However, many business owners fail to update the operating agreement or even establish one in the first place. Consider the following:
Changes in Ownership
If your business has gone through any changes in ownership, such as bringing on new owners or investors, it is important to update your operating agreement to reflect these changes. This ensures that everyone is on the same page regarding decision-making, profit-sharing, and other important issues.
Change in Laws
If your operating agreement is outdated or does not comply with state law, you could face legal and financial consequences. There has been a significant change in the law for which you need to update your operating agreement. Effective January 1, 2024, beneficial ownership reporting is required by the Corporate Transparency Act (“CTA”). The CTA requires businesses to report to the Financial Crimes Enforcement Network (“FinCEN”) the beneficial owners of the entity. There are steep penalties for failing to report timely and accurately beneficial ownership information to FinCEN. For this reason, it is a good idea to update your operating agreement to require all beneficial owners to provide the necessary information and designate the member, officer, or manager who will be reporting the information to FinCEN as well as making sure updates are made in time.
Preparation for Future Success
An updated operating agreement can also help you plan for the future success of your business. It can include provisions for future expansion, investment, and ownership changes. By having a clear and updated operating agreement, you can help ensure that your business is well positioned for growth and success.
In summary, updating your operating agreement is an important step in protecting your business and ensuring its long-term success.