An LLC Operating Agreement is the primary contract between and among the Members of a Virginia LLC. The LLC Operating Agreement governs the membership, management, operation and distribution of any income of the Virginia LLC business. It is recommended that an LLC Operating Agreement should be in place directly after the Virginia LLC becomes active.

While the Virginia LLC laws do not explicitly state that a Virginia LLC requires an official written LLC operating agreement, every Virginia LLC should have in writing a document that evidences the ownership of the Virginia LLC and provides for a set of rules for the governance of the Virginia LLC. The LLC laws may provide certain default rules and procedures, but the smart Virginia LLC owner will not want to rely on the LLC laws which may change from time to time and may not be in the best interest of their particular Virginia LLC. One of the benefits of a Virginia LLC is the ability and flexibility for the Virginia LLC Members to determine how to manage and run their business. It is a common and standard LLC protocol to have an LLC Operating Agreement and so by having one you are mainting a key formality followed by most legitimate LLC businesses. As a result, you add an additional guard against the risk that a court will view you as disregarding your entity and find you personally liable for business lawsuits. Another significant practical benefit of having an LLC Operating Agreement is it provides a written guide for your Virginia LLC which in turn manages the expectations of the members and managers and significantly reduces the likelihood of dispute later as to what applies and does not apply to your Virginia LLC.

A common mistake that a single member of a Virginia LLC makes is thinking that an LLC Operating Agreement is not required for a single member LLC. On the contrary, we think it is even more important for a single member LLC to have an LLC Operating Agreement because single member LLCs are subject to the highest risk of being disregarded when it comes to lawsuits. Having an LLC Operating Agreement provides a substantial element of proof that the single member has been properly maintaining an LLC for his/her business. If you are a single member LLC and your LLC were ever sued, the attorney for the other side may sue you personally and ask the court to hold you personally liable. This is what is known as piercing the LLC veil. If that attorney prevails in piercing through the layer of LLC protection, you and your personal money, home and other assets will all be at risk. It is even more important for a single member LLC to adopt typical LLC processes and procedures and to follow those procedures with adequate documentation. The first step to doing this is for the LLC to adopt an LLC Operating Agreement and follow the provisions set forth in that LLC Operating Agreement.

All initial Members of the Virginia LLC should sign the LLC Operating Agreement. In addition, if a new Member is subsequently admitted to the Virginia LLC, the new Member should sign a written agreement (commonly known as an Addendum) agreeing to be bound by all the terms of the LLC Operating Agreement.

A Virginia limited liablity company (LLC) can be either “member managed” or “manager managed.” The initial LLC members (owners) can decide whether they, as LLC members, want to each be responsible for managing the LLC or whether they want to set up a Board of Managers (manager managed) and elect persons to be managers similar to the way a corporation is managed by its Board of Directors. This structure is usually decided upon and documented in the LLC Operating Agreement of the Virginia LLC.

Ownership in a Virginia LLC is usually structured in two ways: (1) by percentage interests or (2) by LLC membership units, which are similar to shares of stock in a corporation. In either case, ownership generally confers the right to vote and the right to share in the profits of the LLC. Although LLC membership units are like shares in a corporation, an LLC is different from a corporation in that an LLC can distribute its ownership interests as it pleases, without regard to how much money or property a Member contributes to the LLC. For example, if Dave contributes $10,000 of cash to an LLC but does not manage the business, and his partner John contributes only $1,000 but runs the LLC on a daily basis, Dave and John could decide to each have 50% of the membership units of the LLC. A limited liability company can also be organized with different classes of ownership interests, which provides flexibility for special allocations of profits and voting power. If you are thinking about having a complex structure like this, it is advisable that you consult an attorney and accountant.

The Virginia LLC laws do not require that a Virginia LLC have specific officers. However, the business world itself will generally require a Virginia LLC to have officers in most cases. For example, a bank will not allow an LLC to open a bank account unless the LLC has a duly appointed officer authorized to open the account and sign checks. Many times another company that wants to signe a contract with a Virginia LLC will require that a duly authorized "officer" sign on behalf of the LLC. It is recommended that at a minimum a Virginia LLC appoint a President, Secretary and Treasurer. One person can serve in multiple officer roles and that person can be a member of the Virginia LLC.