Facts about the LLC Operating Agreement template

Contents

What is an LLC Operating Agreement?

An LLC operating agreement is the main legal agreement that governs the ownership and management of a limited liability company. It describes the rights and responsibilities of the owners, called LLC members, and how will work together to oversee the business. It can contain information about everything from how a new member can be added to when meetings will be held.

A limited liability company is a type of business entity that combined features of a corporation and partnership. Like a corporation, the members’ liability is limited to that of their investment in the business. In other words, they are not personally responsible for the debts or obligations of the business. Additionally, it can be taxed like a partnership. This means that the tax burden of any profits or losses can be passed through to the members. Therefore, they only pay taxes on the business’s profits once (unlike a corporation that pays both on corporate income and individual income).

Like all types of businesses, LLCs need to have rules to govern how they run. Although not a legal necessity, an LLC operating agreement is a practical necessity, especially if there are multiple LLC members.

The operating agreement can include any rules that the members think are necessary. However, it commonly features how decisions will be made, how often the members need to meet, how ownership is divided and what will happen if someone leaves.

What is an LLC Operating Agreement used for?

The purpose of an LLC operating agreement is to prevent and resolve conflicts between the members. It lays down the agreed-upon rules that all members of the LLC must abide by. Even LLC co-owners who have an excellent working relationship should form an operating agreement to keep everyone on the same page and provide a framework for key decisions.

Through an LLC operating agreement, the members can control how profits are divided, how strategic decisions are made, how debt can be taken on and more. Even single-owner LLCs can benefit from an operating agreement, especially if there is a possibility of taking on an investor or other member.

Why should you use an LLC Operating Agreement form?

Disagreements in the running of any business are almost inevitable. Without an LLC operating agreement, your business will be governed by your state’s default LLC rules (in most cases). Creating an operating agreement gives you an opportunity to set the rules for your business. It can also provide additional legal protections by controlling who can take on debt or bind the LLC to contracts.

Working from a form makes the writing process easier. Although you may want to craft your own LLC rules, most operating agreements are largely similar. Therefore, starting with a workable template means that you can focus on getting the specifics right for your situation rather than writing the full document.

How to write an LLC Operating Agreement

Creating an LLC operating agreement using a form is fairly simple. You can just go through each section and fill out the relevant information while making any changes to the terms you deem necessary. These are a few of the sections you need to include:

  • Company Information:

    You will need to include a little information about the business. This includes the name, formation date, description and the office address.

  • Member Information:

    Each member’s information should be included in the document including name, address, membership class, ownership percentage, capital contribution and share of profits. You will also want to include how someone can leave the LLC and what will happen with assets if you close the business. Adding new members should also be addressed.

  • Management Rules:

    In this section, you should describe how the business will be managed. This includes electing whether the business will be managed directly by the members or by designated managers (who can also be members). Additionally, you should detail how decisions will be made, when votes are required and how official communication will be handled.

  • Administration Details:

    This section should describe the LLC’s accounting methods and other financial rules. It should also elect whether the LLC will be a pass-through entity or corporation for tax purposes.

  • Rules for Contracts:

    Finally, you may want to describe who can bind the LLC to contracts (especially debts).

How to fill out a LLC Operating Agreement with PDFSimpli in five steps

  • 1. Prepare:

    An LLC operating agreement is an agreed-upon set of rules for the members. So, it will likely be helpful to discuss the key points before beginning to draft the agreement. Additionally, you will need to collect information about the company, its formation (if already done) and the members.

  • 2. Choose Software:

    Filling out the LLC operating agreement using a template is easier than starting with a blank page. Consider using PDFSimpli to create the legal form. It has numerous templates that you can start from. Additionally, you easily edit the form from any device with a browser using the online editor. It is an easy way to draft your agreement.

  • 3. Fill Out or Edit the LLC Operating Agreement:

    Once you have selected a template, open it up in the editor and start to fill it out. You will need to include all the relevant information about your LLC and members as described above. You can also change the wording and add new clauses if you choose. You can also save to the cloud as you go and keep working from another device.

  • 4. Review:

    Your LLC operating agreement is a very consequential document. Although it can be amended, you should take the time to review it and ensure that it is exactly what you want. Ideally, this should happen with all the LLC members who will be signing it. Consider also having an attorney review the document before you finish.

  • 5. Save, Download, Print or Send for Signature

    Finally, it is time to sign the agreement. You can print it straight from PDFSimpli or you can save or download it for later. Additionally, you can sign using the online editor and send it to other PDFSimpli users for a signature. In most cases, you don’t need a notary. So, just sign it and start working on growing your business.

LLC Operating Agreement Frequently Asked Questions

LLCs can either be managed by the members or managed by designated managers. In the case of the former, the members all have significant say in how the company will be run. However, all decisions need to be made according to the operating agreement. This can be cumbersome in some cases.Manager-managed LLCs select managers to run them. The managers can also be members. However, they are vested with the right to make certain decisions without requiring member consensus. They are like officers at a corporation.

In most cases, you do not need to file your LLC operating agreement. It is just a document used internally for management purposes. Some jurisdictions may require that you file a copy. However, this is an uncommon situation. However, you should keep a copy safe for everyone’s reference.

No, your LLC does not need to have a share system to set up ownership. However, this is an easy way to control membership. It also allows for a simple, uneven distribution of ownership (one member can own more than another member). Alternatively, you can describe a percentage of ownership by each member.