Multi-Member LLC Operating Agreement Template

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Updated May 15, 2022

A multiple-member operating agreement is designated for companies (LLCs) that have more than one (1) owner. It is highly recommended, as it is the only written document that designates the owners of a company and what percentage of it they own (LLCs are not owned by shares like corporations and are described as a percentage (%)).

When Signing

It is recommended to have an operating agreement notarized to which has a notary public verify the identification of each party. Although, signing either handwritten or electronically is allowed.

By State

What is a Multi-Member LLC?

“LLC” stands for Limited Liability Company, and it is a business entity created under state law. LLCs can be owned by an individual, multiple people, a corporation, or even other LLCs.

In this article, we’re discussing multi-member LLCs. Owners of an LLC are called members, so a multi-member LLC is generally a business with more than one owner. There’s no limit to the number of members an LLC can have, so a multi-member LLC can have two members or it can have dozens.

There are several reasons why you might want to form a multi-member LLC instead of a simple business partnership or a more formal corporation. Forming an LLC gives you more protection from personal liability and more legitimacy in the eyes of customers, competitors, and lenders than a simple business partnership would. And, an LLC will allow you to deal with fewer regulations and pay a lower tax rate than you would if you were to form a corporation.

Using a Multi-Member LLC Operating Agreement

The operating agreement is rarely required by state law and doesn’t need to be filed along with the rest of the documentation. However, it’s still a critical step in creating an LLC. The operating agreement gives you the opportunity to set rules for the ownership and operation of the business. It usually includes the following:

  • How the LLC will be managed
  • Buy and sell provisions (what will happen if a member wants to sell their part or if they die or become disabled)
  • The percentage of interest that each member holds in the business
  • The rights and responsibilities of each member
  • Each member’s voting power
  • The allocation of profits and losses
  • Rules for holding meetings, etc.

How to Form a Multi-Member LLC

Setting up and managing a multi-member LLC isn’t difficult. Unlike setting up a corporation, there aren’t a lot of formalities or requirements. Simply fill out the proper documents, pay your fees, get approved by your state, and voila—your business will become an official Limited Liability Company!

Before you can get started registering your LLC, you’ll need to first find out if the business name you want is still available in your state. In most cases, you can do this online. If your business name is available, you can proceed! If the name is already taken, you’ll have to think of a different one. LLCs don’t allow more than one business to have the same name in the same state.

Once you’re certain that the business name is available, you can go to the business division of your department of state. They’ll give you the information you need to start the paperwork process. The process can vary from state to state, so even if you’ve applied for an LLC in the past, it might be a different process if you have moved.

After that, you’ll need to file your Articles of Organization, sometimes called a Certificate of Organization. When you submit these documents, you will have to pay a filing fee of a couple hundred dollars. Once that is done, your state will process the application, and you will receive your Certificate of Formation in the mail. Now it’s official—you’ve formed a multi-member LLC!

Before you can start making money (or spending it!), you will need to open a separate bank account if you don’t already have one in place for your business.

You will also need to get a tax identification number that’s specific to your business. It’s free and easy to get a new tax ID number from the IRS—you can do it online.

Depending on the situation, you might need additional licenses and permits to run your business. This varies based on the state you live in and the type of business you’re starting.

A final and very important step is creating an LLC operating agreement to set out the rights and responsibilities of each member of your LLC.

Multi-Member LLC vs. Single-Member LLC

The difference between a multi-member and single-member LLC isn’t quite as simple as it seems it would be. You would think that a multi-member LLC would equate to a multi-owner business and that a single-member LLC would equate to a single-owner business, but that’s not always true. A single business owner might choose to form a multi-member LLC, while multiple people sometimes choose to form a single-member company.

For example, sometimes a person with a one-owner business will form a multiple-member LLC and make their spouse or child a member. And if business partners or spouses own several properties as two separate LLCs, they might decide to form a multiple-member LLC that owns the two separate LLCs, thus allowing them to avoid filing separate tax returns.

Taxes are similar for single and multi-member LLCs. In both cases, the member(s) will have to report all profits and losses and pay taxes on their own personal income tax returns. With a multi-member LLC, each member will pay a portion of the LLC’s taxes based on his or her interest in the business.