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Free LLC Operating Agreement Template (2023) Free LLC Operating Agreement Template (2023) – Forbes Advisor
Jacqueline Nguyen is a Florida Attorney who translates complex business and tax laws into easy-to-digest information for entrepreneurs looking to start or expand their businesses.
Jacqueline Nguyen, Esq.
Jacqueline Nguyen is a Florida Attorney who translates complex business and tax laws into easy-to-digest information for entrepreneurs looking to start or expand their businesses.
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Kelly is an SMB Editor specializing in starting and marketing new ventures. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content. She is a former Google Tech Entrepreneur and she holds an MSc in International Marketing from Edinburgh Napier University. Additionally, she manages a column at Inc. Magazine.
Kelly Main
Kelly is an SMB Editor specializing in starting and marketing new ventures. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content. She is a former Google Tech Entrepreneur and she holds an MSc in International Marketing from Edinburgh Napier University. Additionally, she manages a column at Inc. Magazine.
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An LLC Operating Agreement is a legal document that details the rules and regulations of a Limited Liability Company (LLC) with regards to financial and functional decisions. It covers everything from the rights and responsibilities of members, how profits and losses are allocated, and voting rules to management duties and more. Granted, creating one can be a challenge so we created a free LLC operating agreement to help you get started.
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What Is an LLC Operating Agreement?
An operating agreement, also known in some states as a limited liability company (LLC) agreement, is a contract that describes how a business plans to operate. Think of it as a legal business plan that reads like a prenup. It includes terms on managing the business, sharing profits and losses, and how to close the business.
Free LLC Operating Agreement Template When Is an LLC Operating Agreement Necessary? 1. State Mandated
Since LLCs are regulated by state statutes, whether you need an operating agreement will depend on your state. Most states do not require an operating agreement but always recommend it. Below is a list of states that require an operating agreement.
California. California requires an LLC to have an operating agreement. However, this agreement does not have to be in writing. It can be oral or implied. Delaware. Delaware refers to the operating agreement as a limited liability company agreement and requires LLCs to have one. The agreement can be drafted when the LLC is formed or after. Maine. Maine refers to the operating agreement as a limited liability company agreement and requires LLCs to enter into one either before or after the formation of the LLC. Missouri. Missouri requires LLCs to enter into an operating agreement as part of its statute regarding LLCs but does not say when the agreement must be drafted. New York. New York requires a written operating agreement to be drafted before, during or within 90 days of forming an LLC. However, the laws are silent regarding the consequences of not having an operating agreement. 2. Avoid Default Rules
You will be subjected to the state’s default rules if you do not execute an operating agreement. All states have some form of LLC act that details all the rules regarding an LLC. Most default rules are written to allow equitable distribution and power between the members. This can be fine, but if you and your members want something different, you will need an operating agreement to detail that.
3. Multi-Member LLC
While it’s advised to have an operating agreement if you are a single-member LLC, it’s necessary when you have multiple members. This is necessary because you may have different rights for different members. Without an operating agreement, you would have to rely on your state’s default rules which could conflict with your intentions.
Some of the rights an operating agreement will address are:
Determining ownership percentage Capital contributions Voting rights Duties and responsibilities of the members Distribution of profits and losses Death, disability and buyouts of members Adding new members Start an LLC Online Today With ZenBusiness
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Benefits of a Strong Operating Agreement
A solid operating agreement provides many benefits. Two of those benefits are:
Protects Business Liability Status
This is critical for single-member LLCs as they are often treated as passed-through entities, meaning that you don’t have to file a separate tax return for your business. This can create confusion regarding what assets are business and personal. An operating agreement allows you to create a structure that shows your intent to keep the assets separate and will enable you to protect your personal ones from your business. This is also important for multi-member LLCs as you want to ensure your liability is limited to only the business so another member’s actions can’t jeopardize your personal assets.
Clarifies Any Oral Agreements and Offers a Structure for Growth
A solid operating agreement enables complete clarity on the company’s intent and ensures everyone is on the same page to allow businesses to grow. Also, if any issues arise, operating agreements allow clarity on resolving the problems as they detail how to handle someone leaving or adding or voting on changes.
Frequently Asked Questions (FAQs) What is an LLC operating agreement?
An LLC operating agreement is a document that determines business and financial decisions and key member roles. Some states require operating agreements before approving an LLC’s formation.
Do I have to draft an operating agreement?
You must have an operating agreement if your LLC is registered in California, Delaware, Maine, Missouri or New York. An operating agreement is recommended but not required if your LLC is registered in a different state.
How do operating agreements protect personal assets?
Operating agreements show your intent to create a separate structure from your personal assets. This will help protect your personal assets from any business liability.
What’s the difference between an LLC and a corporation?
An LLC is owned by members, while shareholders own corporations. Corporations are often subject to additional taxes while LLCs may be claimed on one’s personal tax documents.
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Jacqueline Nguyen is a Florida Attorney who translates complex business and tax laws into easy-to-digest information for entrepreneurs looking to start or expand their businesses.
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