Starting a new business can be an exciting and challenging experience, not dissimilar to meeting someone new. Whether you’re launching a small side hustle or the next tech unicorn, one of the most important steps you’ll take is establishing your legal structure.

There are many different entity forms to choose from. In Using an LLC to Protect Real Estate Assets, we discuss one use case for the very flexible “LLC” or limited liability company.  If you’re forming an LLC in Rhode Island, it’s essential that you devote the resources necessary to draft a comprehensive operating agreement. Consider this document the “rules of the road” for your business, which will outline the ownership, management, and operations of your company.  These rules are essential for resolving disputes and avoiding legal problems in the future.

Under the Rhode Island Limited Liability Company Act, an operating agreement is not required to form an LLC. However, the lack of a written agreement can create confusion and invite costly legal issues when it comes to ownership disputes or third-party claims.  In Rhode Island, there is a relative lack of case law addressing disputes between LLC owners or the scope of their respective rights, and the absence of an operating agreement can make it more difficult to resolve these disputes in a fair and efficient manner. Off-the-shelf, cookie-cutter forms from legal content websites may sound official, but they often do more harm than good when put to the test.

Your operating agreement will specify the ownership structure of your company, including the percentage and class of ownership for each member. It should also outline the management structure, including the responsibilities and authority of each member, manager and/or officer, as well as providing procedures for resolving disputes, making fundamental decisions, approving distributions and allocating profits and losses. In addition, an operating agreement can specify restrictions on the transfer of ownership interests, voting rights, and other important matters. A well-drafted operating agreement can be a key tool in attracting investors, securing loans, and establishing your company as a professional and well-run business.  Disputes may be rare with new partners—professional or personal—but the prudent business person protects themselves before things hit the rocks.  If only there was an operating agreement to guide our relationships!

Key take away:  If you’re starting an LLC in Rhode Island, it’s essential that you work with a local business attorney who can guide you through these and other formation issues. Your attorney will provide valuable guidance on the content of your operating agreement, provide clarity, stability, and peace of mind for all parties involved, and help you avoid legal problems, disputes or breakups in the future.

For more information or to talk through this topic with us, you can reach Owen Lynch directly at or 401-270-1047. Owen will provide advice and expertise so that you can ensure that your company is legally sound and well-positioned for success.