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LLC Operating Agreement

All states | 2 types
Updated Feb 7, 2024
Free
An LLC operating agreement is an essential document that establishes operational and managerial decisions for a limited liability company. This agreement defines the primary processes, rights, and responsibilities of the members.
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Document Types
Single-Member LLC Operating Agreement
This form helps to govern the operations of a single-member limited liability company.
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An LLC operating agreement is an essential document that establishes operational and managerial decisions for a limited liability company. This agreement defines the primary processes, rights, and responsibilities of the members. The purpose of the LLC agreement is to establish business provisions, maintain control over the company's internal affairs, and protect the members' rights. 

By having this agreement, an LLC establishes a framework for operations, avoids default state laws, and highlights clear expectations for all members. This increases transparency, provides a solid platform for defending and safeguarding your assets, and mitigates potential disputes.

When to Use an LLC Operating Agreement

Any new or existing LLC would benefit from crafting an operating agreement. This is particularly important upon the formation of the LLC. If the LLC has more than one member, an operating agreement for LLC should be used to provide governance structure and rules. Moreover, even single-member LLCs can enjoy the advantages of an LLC operating agreement template, as it provides legitimacy to their business. It is also desirable when the LLC decides to accept new members or when members wish to exit the business.

Parties

  • Member — This can be an individual, a corporation, or another LLC that owns a stake in the LLC. Similar to a shareholder in a corporation, members hold an interest in the LLC in relation to their investment or as outlined in the operating agreement. Their rights and responsibilities, including their profits and loss distributions and their voting rights, are detailed in the agreement. Once the member has fulfilled the obligations and commitments mentioned in the document, they are entitled to their share of the profits and a say in the LLC's affairs, depending on their stake. 

  • Manager — Often appointed by the members, the manager can be a member or an external individual or entity tasked with running the daily operations of the LLC. The manager is accountable for making key decisions, performing the general business activities, and supervising the overall structure of the LLC.
Insight

Upon the completion of their duties, the manager's performance is reviewed by the members. The manager's scope of responsibilities and powers are outlined in the operating agreement and may vary depending on whether the LLC is member-managed or manager-managed. Upon fulfilling their role, the manager ensures the smooth functioning and profitability of the LLC.

Key Terms

  • Capital Contributions: This details each member's contribution to the LLC. It can be in the form of money, assets, or services. 
  • Distribution of Profits and Losses: Specifies how and when the LLC will allocate profits and losses among the members.
  • Members' Voting Rights: This section defines how each member's votes influence decisions. It can be proportional to their capital contributions or equal, regardless of contributions.
  • Management and Duties: Explains whether the LLC is member-managed or manager-managed and describes their specific roles and responsibilities.
  • Dissolution Process: This outlines the circumstances or events that can lead to the termination of the LLC.

How to Write an LLC Operating Agreement

An LLC operating agreement is an essential legal document determining the ownership structure, operating procedures, and financial mechanisms of an LLC. You can draft the document yourself or use online resources for a free operating agreement template tailored to your needs.

Here are the steps to fill in an operating agreement LLC template, whether you're a single-member or multi-member LLC:

Member
  1. Disclose the details of every party involved, encompassing the legal names and contact information. 
  2. Define the percentage of ownership and outline the capital contribution from each member.
  3. Describe the features of the LLC, including its principal business address and its purpose.
  4. Assemble all pertinent details, such as when the LLC was formed and its filing information.
Managers
  1. Specify the name of the LLC whose operating proceedings are being depicted.
  2. Highlight the governing state law overseeing the LLC and its operations.
  3. Confirm that every member has consented to the obligations and expectations outlined in the operating agreement LLC.
  4. Outline the terms associated with profit and loss allocation, decision-making procedures, and provisions for amending the operating agreement.
  5. Set forth any dissolution process, pivoting on the practices or rules of your specific jurisdiction, that delineate steps for disbanding the LLC.
  6. Determine how the operating agreement template will be enacted and who will administer the enforcement process.

Using even the simplest free LLC operating agreement can save time, ensure completeness, and provide legal protection for the members. Based on standard terms, it can be customized to fit your company's specific needs. Free operating agreements can offer flexibility to structure your company in a way that best suits your business needs. 

In conclusion, an LLC operating agreement sample is a crucial tool for any LLC as it clarifies roles, duties, and procedures while offering legal protection for all members. As this is a legally binding document, creating one with detailed attention is imperative. Utilizing a well-structured template can help expedite the process and ensure meticulous execution. However, if you’re searching for an LLC operating agreement template free, consult a lawyer to ensure the document is drafted correctly. 

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