Updated August 08, 2022
An LLC operating agreement is a legal document that governs the affairs, management, and ownership of a company. It is commonly written by the members when the LLC is formed. Any changes in the company must be reflected by adding an amendment.
It is required that all members of the LLC sign the operating agreement for it to become legally biinding. It is not filed with any government entity and must be held by each member.
Main Purpose
An operating agreement is the only document that governs a company’s:
- Business affairs;
- Management; and
- Ownership interest.
By State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- Washington D.C.
- West Virginia
- Wisconsin
- Wyoming
By Type (2)
Single-Member Operating Agreement – To be used by an LLC with only one (1) owner.
Download: Adobe PDF, MS Word (.docx), OpenDocument
Multi-Member Operating Agreement – To be used by an LLC with more than one (1) owner.
Download: Adobe PDF, MS Word (.docx), OpenDocument
Table of Contents |
What is an LLC Operating Agreement?
An LLC operating agreement is a document that acts as the bylaws of the company detailing its ownership, management, officers, and registered agent.
It is required when opening bank accounts to show members that own more than 25% of the company.
Video
Definition (Cornell Law)
Governing contract adopted by members of a Limited Liability Company (LLC). It may be used to regulate nearly all aspects of the LLC’s affairs, including how the business is managed, how assets are used and how revenues are shared. An operating agreement will override any default rules presented by a state LLC statute, which controls in the absence of an operating agreement.
Source: www.law.cornell.edu/wex/operating_agreement
Is an Operating Agreement Required?
An operating agreement is required in:
- California – § 17701.13(d)(5)
- Delaware – § 18-201(d)
- Maine – 31 § 1531(1)(b)
- Missouri – § 347.08
- New York – § 417
What to Include? (5 items)
Members
If a new member is added to the company, which means the LLC Operating Agreement would need to be amended, all existing members must approve with the written consent of that new member. This also applies to an increase or decrease in ownership from one member to the next.
Distribution of Profits
It’s easy to disburse profits to members within the LLC as each member is responsible for paying taxes on their income from the business.
Flexibility
When setting up the structure of your LLC Operating Agreement, you can keep it simple or add as many laws within the company as you see fit. An LLC typically has much less paperwork and meeting requirements than most other formation types.
Pass-through Taxation
The business itself is not taxed, instead, each member pays their share of taxes for the money made or lost based on personal income.
Protection
LLC members are not personally liable or responsible for business debts and liabilities. This benefit single-handedly is why many people choose to create an LLC over other entity types.
Sample
Download: Adobe PDF, MS Word, OpenDocument
LLC OPERATING AGREEMENT
OF
[NAME OF COMPANY], LLC
I. THE COMPANY. This LLC Operating Agreement (“Agreement”) is made this [DATE], for the following:
Name: [NAME OF COMPANY] (“LLC”)
Date Formed: [DATE]
State of Formation: [STATE]
II. THE MEMBERS. The LLC is a: (check one)
☐ – Single-Member LLC. The sole owner of the LLC shall be:
Member: [NAME]
Mailing Address: [ADDRESS]
Ownership: [#]%
☐ – Multi-Member LLC. The owners of the LLC shall be:
Member #1: [MEMBER’S NAME]
Mailing Address: [ADDRESS]
Ownership: [#]%
Member #2: [MEMBER’S NAME]
Mailing Address: [ADDRESS]
Ownership: [#]%
Member #3: [MEMBER’S NAME]
Mailing Address: [ADDRESS]
Ownership: [#]%
Hereinafter known as the “Members.”
III. TERMS.
a.) Principal Place of Business. [ADDRESS] shall be known as the principal place of business of the LLC.
b.) Registered Agent. [NAME] shall be known as the “Registered Agent” with a mailing address of [ADDRESS]. The Registered Agent shall hold the rights and responsibilities granted to them allowed under state law.
c.) Management. The management of the LLC shall be decided by its Members to handle the following matters:
i.) Managers. To decide if a Manager or which Members shall run the day-to-day activities of the LLC;
ii.) Dissolution and Liquidation. Any dissolution or liquidation of the LLC’s assets or property;
iii.) Accounting. Accurate books and records of the LLC that includes providing necessary documents for the Members iv.) to file taxes in a timely manner;
iv.) Distributions. Any disbursing of money from LLC profits or cash accounts to the Members;
v.) Annual Meeting. The Members of the LLC agreement to meet on an annual basis with the details of the meeting to be made with 30 days’ notice;
vi.) Withdraw. To decide whether Members can withdraw themselves from the LLC;
vii.) Assignment. To admit new Members of the LLC;
viii.) Amendments. To alter, amend, or change this Agreement.
d.) Purpose. The purpose of the LLC is to engage in lawful business activity for the benefit of its Members and the general public.
e.) Governing Law. The LLC shall operate and run its business activities in accordance with the laws located in the state of formation.
f.) Indemnification. None of the Members shall bear the responsibility, obligations, or liabilities of the LLC or others who may act on the LLC’s behalf.
g.) Capital Contributions. Any capital contributions made shall be attached to this Agreement and signed by the Members.
h.) Term. The LLC shall operate on a perpetual basis with no end date unless decided upon by the Members.
i.) Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the other provisions of this Agreement, which shall remain in full force and effect.
This Agreement sets forth the entire and sole agreement between the Members hereto with respect to the subject matter hereof and shall be considered legally binding upon execution.
Member Signature: _____________________________ Date: ______________
Print Name: _____________________________
Member Signature: _____________________________ Date: ______________
Print Name: _____________________________
Member Signature: _____________________________ Date: ______________
Print Name: _____________________________
How to Write
Download: Adobe PDF, MS Word, OpenDocument
Step 1 – Name Your LLC
Before naming your LLC, you need to conduct a search, which can typically be done online, of your desired name within your state’s Secretary of State’s office. If another LLC is already assuming your desired name, you would then have to choose another name, as no two entities may have the same name within your state. Your company name must contain the words Limited Liability Company or a State-approved abbreviation, most commonly “LLC” (For example: “John Smith LLC”)
Step 2 – State of Jurisdiction (Choose Your State)
Your LLC must be registered with the State it plans to do business and not on the federal level. The only item that is registered at the federal level is when applying for a Tax ID Number (also known as a Federal Employer Identification Number, or “FEIN” and “EIN”).
Step 3 – Select Type
- Single Member – A Company with only one (1) owner. It’s important to have this document, even with just a single owner, as it helps prove entity status if questioned by a third (3rd) party. If a court asked to view your LLC Operating Agreement and it did not exist, it would reflect poorly on your entity and you would run the risk of having your entity status removed.
- Multi-Member – A Company with multiple owners. All sections of your LLC Operating Agreement should be looked at very closely as it affects all the members of the entity, especially the ownership interest and distribution.
Step 4 – Principal Place of Business
Enter your business’s main address, also known as the “Principal Office Address”, where the main functions of the business are located. Also referred to as the “Company Headquarters”. For most small businesses, the address of your main office will suffice.
Formation – This is the Date the Company was formed and within the State name.
Step 5 – Registered Agent and Office
A Registered Agent is an individual appointed to accept any and all notices from outside including official legal notices from the state, which will be sent to the registered agent’s address. It is recommended to elect to have a lawyer assume this position or a person that is a resident of the State the Company is located.
Step 6 – Member Contributions
Members who have personally contributed to the LLC should have their contributions listed. In addition to cash, if there are any assets (such as vehicles, office furniture, etc.) given to the Company, it should be mentioned for tax and distribution purposes.
Distributions – Money sent to members of the LLC generated from the revenue of the business. This is usually calculated as profit or at a figure after paying most of the Company’s operating expenses.
- The percentage of distribution each Member is entitled to is usually reflected in the percent that the member owns in the LLC. Therefore in the boxes, the name(s) of the member(s) should be entered along with their respective percentage interest.
Bank Accounts – The bank account(s) that the Company shall use must have all monies deposited into said account and may only be withdrawn at certain times by the designated Member(s).
Management of the Company – The Company may opt to be managed by a member or by a manager that is selected by the member(s). If the Company chooses to have a Manager, then their role, power(s), and interest in the Company should be mentioned.
Step 7 – Member Meetings
Entities are typically required to meet at least once per year in a location, usually at the company’s principal office. Depending on the Company, this annual meeting can be treated more seriously than others. In some meetings, the minutes must be written stating the items that were discussed along with votes. All minutes, discussions, votes, and any other decisions made should be recorded and placed on file.
Step 8 – Assignment of Interests
A clause where rules can be set up about the assignment of ownership in the entity.
- For example, most companies will require members to offer their share of company ownership to other members within the LLC before attempting to sell shares outside of the Company.
Step 9 – Ownership of Company Property (Applies to Single-Member ONLY)
With a Single Member LLC Operating Agreement, you can elect to establish the Company as a separate entity where all assets owned are by the LLC and not under the ownership of a sole member.
Step 10 – Right of First Refusal (Multi-Member Only)
Gives members the option to purchase interest that is being sold by another member before an outside party can make an offer. If any member refuses to purchase for the said price, the outside party shall be permitted to purchase the interest.
Step 11 – Admission of New Members
New members added to your company through any type of acquisition must have consent by fellow members through a unanimous vote. Consent by each member should be in writing.
Step 12 – Withdrawal Events (Multi-Member Only)
In the event a member dies your company will have 60 days to decide, through a vote, to keep your company active or become terminated. Members are not able to leave the Company in the event it brings on debt or if one member attempts to force out others from the LLC.
Dissolution and Liquidation – Members can list various actions that would allow for the dissolution of the Company and the selling of all its assets.
Representation of Members – A clause that states the Company is, more or less, for investment reasons and shall follow all local, State, and Federal laws.
Step 13 – LLC Certificates (Optional)
At the option of the members, they may allow themselves to generate certificates that state their interest in the Company. Only applicable if the LLC decides to produce them.
Notices – All communication made to the members shall be sent to the address printed in the operating agreement. All notices are recommended to be completed via Certified Mail.
Step 14 – Amendments
If there are to be amendments or changes to this agreement make sure that there are sufficient rules in place so that no single party can make edits without the approval of majority or all of the members.
Indemnification – For single member agreements, the section states that any actions by the Company shall hold the sole individual, and any employees or family members, harmless from any actions taken by the Company. This is within reason and if there has been extreme negligence performed by the member they may still be held liable.
Miscellaneous – The last paragraph states that the entire agreement is not bound by any of the terms that may not apply in certain jurisdictions and that if there are any other terms that should be included in the agreement that they are entered in this area.
Related Forms
Amendment to an LLC Operating Agreement
Download: Adobe PDF, MS Word, OpenDocument
Download: Adobe PDF, MS Word, OpenDocument