While there is a belief, that is true to some extent, that there is flexibility with LLCs, be wary to fall into the trap of believing that you can be informal in how you govern your LLC. Here are 5 of the largest pitfalls we see:

PITFALLS

1. Loosely following the Operating Agreement. The Operating Agreement is not just a boilerplate document. It has strict guidelines to follow in how the operation is run and duties of those operating it.

2. Not being precise with later drafted agreements. Emails, letters, texts, etc can all become evidence to show an agreement ie, “meeting of the minds” and if those are not precise, they can be the start of a legal battle later. A formal contract/agreement drafted by an attorney is your best hope to avoid this pitfall.

3. Not religiously have annual meetings and finalize formal meeting minutes. The best practice is to have your attorney be sure that the meeting is done and he/she can draft the meeting minutes on your behalf, showing the changes in the LLC and adding new agreements, etc on behalf of the LLC during the year.

4. Powers within the LLC. Often, due to convenience or forgetfulness, those without certain powers in the LLC carry out acts wherein they do not have the authority to operate.

5. California Revised Uniform Limited Liability Company. As of January 1, 2014, RULLCA applies to all LLC actions. This statute now governs LLCs and the changes made in 2014 alters the rights and expectations of members and managers that may conflict with their current Operating Agreement (OA). If your OA was drafted prior to 2014, you may need to have it reviewed and updated by an attorney.

It is important to follow the laws regarding operating your LLC as you can find yourself in deep water should trouble arise later. Like any business, the contracts and agreements must be taken seriously and drafted precisely.