Ohio LLC Operating Agreement – Top Five Points You Need to Know

Elliott Stapleton Common Questions, Limited Liability Company-LLC

Forming an Ohio LLC with multiple owners is like a marriage. You will be contributing your time, effort, and resources to the partnership. You can protect this contribution and limit the likelihood of a messy “divorce” by creating a reasonable Operating Agreement that protects all of the owners.

Here are the top five points that should be included in your Operating Agreement. Note, this is simply a summary and not language you would want to transplant into an online form. Click here to to schedule a free initial consultation with an Ohio Attorney to discuss incorporating this information into your company’s agreement.

1) Member Managed LLC

Who is in charge of making the day-to-day business decisions for the company? There are two types of decisions for a company

  1. Decisions that require approval of all members
  2. Decisions that do not require approval of all members

It is important to appoint a manager (or managers) to make the day-to-day decisions of the company without constrains of a full membership vote. Similarly, it is necessary to draw a clear line when a membership vote is necessary.

Uncertainty on what decisions can or cannot be made is a common cause of internal disputes. There is an easy solution to limit the likelihood of disputes.

Part of our representation of businesses includes drafting a clear, objective standard for decision-making. This limits the likelihood of disputes and allows the company to focus on its business.

2) Death of a Member

What happens if a member of your LLC dies?

Typically, when we ask that question to clients there is a long silence. Most companies have not discussed this topic or thought about the potential implications. While not a pleasant topic, the minor uneasiness that comes from this discussion saves you from a potential calamity.

There are two opposing feelings when dealing with the death of an owner:

  1. If you die, you want your family compensated for the hard work that you have contributed to the company.
  2. If another partner dies, you don’t want his or her family stepping and telling you how to run your business.

It is possible to have both of these goals accomplished through careful planning and utilizing life insurance policies in a Buy Sell Agreement.

3) Resolving Disputes

If there were a dispute or deadlock amongst the members, what would happen to the company? The operating agreement can establish a process for avoiding disputes through carefully drafted voting standards and by creating a buyout option.

Without these options, a dispute or deadlock may require judicial dissolution of the company. Dissolution would result in the sale of the company’s assets and termination of the business.

4) Non-compete Agreements

What would happen if one of your partners decides to leave and start a competing venture?

Each owner of your company is going to possess very sensitive knowledge about your business, marketing plans, suppliers/vendors, profit model, and intellectual property. You don’t want to end up competing with one of the founders of your company when he or she has this unfair advantage. Similarly, you don’t want a current owner of the company competing with your business while he or she is still with the company.

To avoid this risk, we include provisions within the operating agreement to ensure the company is protected for a reasonable period of time after the owner leaves.

5) Intellectual Property

Every business has intellectual property. This can include Trademarks, Copyrights, Patents, and Trade Secrets. For some companies, these are the most important assets to protect and the most valuable assets to sell.

If your company had an “informal” beginning without an agreement, there is a risk one of the owners will claim the intellectual property is a personal asset; and not an asset of the business.

To remedy this issue, all members of the company must assign their rights to ensure the business is protected.

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About the Author

Elliott Stapleton

Elliott is a partner in the firm of Cornetet, Meyer, Rush and Stapleton serving clients throughout Ohio. Elliott's business clients range from small single member companies to large privately-held businesses. CMRS Law provides legal services which include advice on Business Formation and Transactions, Real Estate Transactions, Trademark Law, Copyright Law, Estate Planning, Trust Administration, Probate Administration, and Succession Planning. CMRS Law serves clients at two locations: 123 Boggs Lane, 1st Floor, Cincinnati, Ohio 45246 and 2101 Grandin Road, Suite A, Cincinnati, OH 45208