Thank you for downloading!
How would you rate your free form?
How do I write my operating agreement?
Below we'll go over the common provisions and include sample language for each to help guide you.
1. Name and Purpose of your LLC
By now you should know the name of your LLC (it's whatever you called it when you filed your LLC formation document with your organizing state), but you also want to be sure to explain the purpose of your LLC. You don’t have to be extra specific. In fact keeping your statement generalized leaves the door open for you to take on new ventures without having to refile.
OPERATING AGREEMENT of [COMPANY NAME]
This operating agreement is adopted as of [Date] (the “Effective Date”), by [Member’s Name], an individual and the sole member (the “Member”) of [Company Name] (the “Company”).
The Member hereby adopts this agreement as the operating agreement of the Company, which agreement sets forth the entire understanding of the Member regarding its subject matter and supersedes all prior understandings and agreements regarding its subject matter.
The purpose of the Company is [Company Purpose], and the conduct of other activities as may be necessary or appropriate to promote the stated purposes, and to engage in any other lawful business or activity for which a limited liability company may be organized under the Act.
2. LLC Management - Member or Manager
This section is where you indicate if your LLC will be either member or manager-managed. It also outlines the rights and responsibilities of each member, including capital contributions, voting rights, and management structure. Though it may seem unnecessary as the only member, it is crucial for establishing your single member LLC.
Member-Managed LLC.
The business and affairs of the Company will be managed by the Member. The vote, action, decision, or consent of the Member will constitute a valid decision of the Member and the Company. The Member may appoint one or more officers (including the Member, if the Member is an individual) who will have such powers and authority to act on behalf of the Company granted to them by the Member.
OR
Manager-Managed LLC.
The business and affairs of the Company will be managed by the manager of the Company and any successor thereto appointed by the Member, which manager may also be referred to as the Company’s president (the “Manager”). The initial Manager will be [Manager Name], who will serve until the Manager’s death, removal by the Member (for any reason or no reason), or resignation. The Manager will have the right and authority to manage the affairs of the Company and make decisions and take action with respect thereto without further approval or consent of any kind by the Member. Except as otherwise required by this agreement and in lieu of any limitations set forth in [State Name]’s laws for limited liability companies (the “Act”), the Manager will be solely responsible for and is hereby authorized to manage and operate the business of the Company. Except to the extent that the authority of the Manager is expressly limited by the Member, the vote, action, decision, or consent of the Manager will constitute a valid decision of the Manager and the Company.
3. Registered Agent
The registered agent is the person who is responsible for receiving and taking care of important documents on behalf of your company. Some LLC operating agreements include this, but it's not absolutely necessary because you list this on your formation documents that you file with your organizing state.
The Company’s registered agent in State is: Registered Agent Name, Address. The members may designate other registered agents or offices at any time in this state or, if necessary, in other states.
4. LLC Duration
Think of the "term of an LLC" as the lifespan of your Limited Liability Company. It's the duration that the LLC is meant to exist, as described in your formation documents. While many business owners form LLCs with the intention of allowing them to operate indefinitely, you also have the option to specify a fixed period or end date for your LLC.
In most states, LLCs are considered "perpetual" by default, meaning they can exist as long as you want them to. Here's a sample provision:
The duration of the Company will be perpetual.
5. Capital Contributions
Capital contributions are the funds, property, or services you provide to your LLC to kickstart its operations. Think of it as the initial investment you make to get your business up and running. For single-member LLCs, capital contributions can come entirely from you as the sole owner, meaning you have the flexibility to decide how much money or assets you'd like to put into your business.
It's essential to document your capital contributions properly. This helps give a clear picture of your business's financial structure and can provide essential details for tax purposes.
The Member’s capital contribution(s) to the capital of the Company for the Member’s membership interest in the Company will be reflected on the books and records of the Company.
OR
The members have made or shall make the contributions of cash, property or services to the LLC as set forth on Exhibit A attached.
6. Indemnification
Indemnification provisions in an LLC's Operating Agreement work as a safety net protecting the company's members from certain costs tied to legal issues that could arise from their work for the company. This means that the LLC will cover any legal fees or damages if a member faces a lawsuit related to their duties for the business.
The agreement should clearly define when and in which circumstances the LLC will provide this protection, along with any exceptions. Usually, indemnification wouldn't cover intentional wrongdoing or serious negligence. Tailoring these terms to your business's particular risks is important to ensure adequate protection.
The Member, the Manager, the officers, and the organizer of the Company and their respective affiliates, stockholders, members, managers, directors, officers, partners, employees, agents, trustees, and representatives (individually, an “Indemnitee”) will be indemnified by the Company against any and all losses, claims, damages, liabilities, expenses (including legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits, or proceedings, civil, criminal, administrative, or investigative, in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of the Indemnitee’s status as any of the foregoing, which relates to or arises out of the Company or its assets, business, or affairs, if in each of the foregoing cases (A) the Indemnitee acted in good faith and in a manner the Indemnitee believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful, and (B) the Indemnitee’s conduct did not constitute gross negligence or willful or wanton misconduct. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, will not, of itself, create a presumption that the Indemnitee acted in a manner contrary to that specified in clause (A) or (B) above. Any indemnification under this section 5 will be made only out of the assets of the Company, and the Member will not have any personal liability on account thereof.
7. LLC Tax Status
Your LLC can be taxed in one of four ways: as a sole proprietorship, partnership, S corporation, or C corporation. The way your LLC gets taxed depends on the number of members and the tax status your business selects with the IRS.
Your LLC's operating agreement should include sections related to tax status. These sections discuss your chosen tax status, how you can change it, and how you handle tax returns and allocations (when applicable). This helps your LLC have a plan for handling business finances, including profits, losses, dividends, and taxes. The key is to offer a clear roadmap for managing any tax-related issues that may arise in your business.
Default Tax Status.
The Company will be disregarded for federal and state income tax purposes. The admission of one or more additional members, however, will cause the Company to be recognized for tax purposes, and to be taxed, as a partnership.
OR
S Corporation Tax Election.
The Member acknowledges that the Company has elected to be taxed as a corporation for federal tax purposes pursuant to the regulations currently in effect under Section 7701 of the Code, and to be taxed as an electing small business corporation under the provisions of Subchapter S of the Code. Notwithstanding such tax treatment, the Member acknowledges and agrees that the Company will be a limited liability company, for state law purposes, under the provisions of the Act, the Articles of Organization, and this operating agreement.
The Member acknowledges that the Company has filed or will timely file a Form 2553 (Election by a Small Business Corporation) with the Internal Revenue Service and that the election made pursuant to the filing is or will be in force and effect covering all periods since the date of this operating agreement. Except as otherwise provided in this operating agreement, during the term of this operating agreement and the continuation of the Company’s “S” corporation election under Section 1362 of the Internal Revenue Code, no Member shall take any action which would cause the revocation or termination of the Company’s “S” election (under Section 1362(a) of the Internal Revenue Code) and any attempt to take such an action will be null and void and without effect. Without limiting the foregoing, and notwithstanding any provision hereof to the contrary, any transfer or attempt to transfer any membership interest to any of the following will be null, void, and without effect:
(a) a person whose ownership thereof would cause the Company to have a number of Members and assignees of membership interests (shareholders of an “S” corporation) greater than the number permitted by Section 1361(b)(1)(A) of the Internal Revenue Code;
(b) an individual who is not a United States citizen or resident;
(c) a trust (or the trustee thereof) which fails to satisfy the requirements of Section 1361(c)(2)(A) or 1361(d) of the Internal Revenue Code;
(d) a corporation; and
(e)any other entity whose ownership would cause the termination or revocation of the Company’s tax status as an “S” corporation.
8. Profit and Loss Distributions
Your profit and loss distributions clause simply indicates when your LLC will distribute cash that it brings in. For single-member LLCs, it's not that important. For multi-member LLCs, you want to make sure you indicate when, what's required, and how the distributions will occur.
As the sole member of the LLC, the Member is entitled to all profits of the LLC and is responsible for all its losses. Profits and losses shall be determined annually and will be allocated to the Member's capital account. Distributions of cash or other assets will be made at such times and in such amounts as deemed appropriate by the Member.
9. Amending your LLC
What happens when you need to change any term in your LLC? Simple - you just follow your LLC amendment clause. For single-member LLCs, it's a lot simpler. For multi-member LLCs, you want to really think it out and consider what's important in terms of voting percentages and what's required to amend the operating agreement.
This agreement and the articles of organization of the Company may not be altered, modified, or changed, and no provision of this agreement may be waived, except by an amendment or waiver, as applicable, approved by the Member.
10. Corporate Formalities Waiver
LLC's by their nature usually aren't required to follow corporate formalities. That's more so a corporation thing. But, in some cases, not following formalities could lessen the change of maintaining your corporate veil. For that reason, we like to include a waiver of all formalities in the operating agreement.
The failure of the Company or the Member to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this operating agreement or the laws in the state in which the Company is which govern limited liability companies will not be grounds for imposing personal liability on the Member for liabilities of the Company.
11. Dissolution.
This is the plan for what to do when things don't go entirely as planned. It guides you on how to dissolve your LLC and designate who will maintain control of the LLC in the event of your death or demise.
Upon the occurrence of any event which terminates the continued membership of the Member in the Company, the Company will not be dissolved, and the business of the Company will continue. The Member hereby specifically consents to such continuation of the business of the Company upon any such event. The Member’s legal representative, assignee, or successor will automatically become an assignee of the Member’s interest and will automatically become a substitute Member in place of the withdrawn Member.
12. Effective Date.
Your effective date for your operating agreement is the date the agreement becomes active. Another way to think of it -- it's the day the agreement "takes effect." This is usually listed in the first paragraph of your agreement.
Do I need to file my Agreement?
Nope! Unlike your Articles of Organization (or Certificate of Formation, depending on your home state), your operating agreement is an internal document that you simply keep in your own company's records. Sign it and keep a copy so you can find it when you need it, that's it!
What if I need to add another member to my LLC later?
Most of us small business owners dream of the day when our business expands past what we can manage by ourselves. If you find yourself in that fantastic position and you are ready to add another member to your LLC, you will need to redo the above paperwork in accordance with the agreement between yourself and the new partner. Most likely, you'll want to create a completely different agreement, as a multi-member operating agreement is considerably different a single-member operating agreement.