Qualified Opportunity Zone Business Operating Agreement: What You Need to Know
The Qualified Opportunity Zone (QOZ) program was established by the Tax Cuts and Jobs Act of 2017 to encourage investment in economically distressed areas of the United States. The program offers tax incentives for investors who invest in Qualified Opportunity Funds (QOFs), which are investment vehicles that provide capital to businesses located in QOZs. However, to take advantage of the QOZ program, businesses operating in QOZs must have a Qualified Opportunity Zone Business Operating Agreement in place.
What is a Qualified Opportunity Zone Business Operating Agreement?
A Qualified Opportunity Zone Business Operating Agreement (QOZ BOA) is a legal document that outlines the terms and conditions of a business operating in a QOZ. The document must be signed by all the company`s owners and should include provisions related to the operation, management, and ownership of the business.
The QOZ BOA is an essential document for businesses that want to take advantage of the QOZ program. It plays a critical role in determining the eligibility of the business for tax incentives and helps ensure that the business is complying with all the requirements of the program.
What should a QOZ BOA include?
A QOZ BOA should include several essential provisions, including:
1. Business purpose: The document should clearly state the purpose of the business and the goals it aims to achieve.
2. Management structure: The agreement should outline the management structure of the business, including who will make day-to-day decisions and how major decisions will be made.
3. Ownership structure: The agreement should detail the ownership structure of the business, including the ownership percentages of each owner.
4. Capital contributions: The document should outline the capital contributions of each owner and how new capital will be raised if needed.
5. Distributions: The agreement should include provisions related to how profits and losses will be distributed among the owners.
6. Dissolution: The document should include provisions related to the dissolution of the business and how assets will be distributed.
7. Compliance with QOZ program requirements: The document should include provisions related to the requirements of the QOZ program, such as the requirement to maintain at least 70% of the business assets in the QOZ.
Why is a QOZ BOA important?
A QOZ BOA is important for several reasons, including:
1. Eligibility for tax incentives: To qualify for tax incentives under the QOZ program, a business must have a QOZ BOA in place.
2. Clarification of ownership structure: The document helps clarify the ownership structure of the business, including who owns what percentage of the business.
3. Clarity on decision-making: The QOZ BOA outlines the decision-making process for the business, which can help prevent disputes among the owners.
4. Compliance with program requirements: The QOZ BOA ensures that the business is complying with all the requirements of the QOZ program.
Final thoughts
A Qualified Opportunity Zone Business Operating Agreement is a critical document for businesses operating in Opportunity Zones. It outlines the terms and conditions of the business and helps ensure compliance with the QOZ program requirements. To learn more about QOZ BOAs, consult with a qualified attorney or tax professional.