Hi, I'm Katherine Taylor, the lawyer for business owners. I'm going to be doing a series of videos on the unintended consequences of boilerplate language in LLC operating agreements. That was a long explanation of what these videos are going to be about, but you'll understand if you're an LLC member.

Here's an example I want to share with you. Recently, I had a client provide me with an operating agreement for review. It was a multi-member LLC operating agreement, and it had been drafted by the other member's lawyer. As I was reading through it, I realized it was the exact same template I've seen in the past from a widely available source here in Maryland, which is where I practice. I also realized it was pretty much just the template—there were very few, if any, meaningful changes made by the other lawyer.

So the first thing I did was contact my client and start asking questions. Why? Because one operating agreement is not necessarily right for every LLC. In this situation, as in many others I've seen, the agreement contained boilerplate provisions that could have completely undermined the intent of the business owners.

In this particular case, the operating agreement included language that, if the company had followed it—and if they had followed their CPA's suggestion to elect a certain tax status—would have ruined that tax status and potentially resulted in significant additional taxes. It could have had severe tax consequences.

By asking the right questions, talking with the client, and learning more about their specific needs, I was able to revise and redraft the agreement to properly meet those needs and to avoid creating evidence that could be used in an IRS action asserting that the LLC owed more tax.

If you already have an operating agreement and you're not sure whether it truly fits your business, don't assume it's fine just because it looks official. Boilerplate language can create real and expensive problems. Review your operating agreement and take a closer look. If you'd like a professional review, or if you need an agreement drafted that actually reflects how you want your business to operate, give us a call to schedule a consultation.