Founders often do not wish to be held liable for the company’s debts or responsibilities when forming a business. In this case, you’ll need to form a limited liability corporation (LLC).
An LLC operating agreement lays the framework for your business by establishing a set of norms and rules for money, administration, ownership, and obligations. A bylaw document is to corporations what this agreement is to LLCs.
If you’re creating a company, we have a free and customizable LLC operating agreement template that will help you get started. It takes only 4-5 minutes to complete and sign!
Note: Make any necessary changes to this template to meet the legal requirements of the state in where your LLC is registered.
How to sign an LLC operating agreement template
- The LLC operating agreement template is available for download.
- Fill in the blanks with the information about your LLC.
- Sign the agreement using Signeasy.
- With a few clicks, send the document to all members electronically.
- Follow the progress of the signers.
- Get notifications as soon as each participant signs the paper.
- Save a copy of the signed LLC operating agreement to the cloud in a secure manner.
- Send a copy to the Secretary of State in your state.
Understanding the LLC operating agreement template
Your Limited Liability Company’s ownership and member responsibilities are outlined in this legal document. Our LLC operating agreement form also covers how to handle the company’s profits and challenges.
There are two kinds of operating agreements for LLCs:
For limited liability companies with several owners
Apart from the number of members, the two are taxed differently. A single-member LLC is treated as a disregarded entity/sole proprietorship by the IRS, while a multi-member LLC is treated as a partnership. As a result, members of both types of entities pay separate taxes.
Consider the following LLC operating agreement template for a business with many owners:
Begin the agreement by stating the company’s name and that it was created under the laws of a specific state. Then specify if the LLC is single-member or multi-member (depending on how many owners the company has).
You should also mention the members’ names and addresses. In most cases, the names are written in all caps.
Confirm that the members want to form an LLC at the end of the section.Introduction
Detail the company name, major place of business, date of LLC establishment, term, fiscal year, and objective to set the tone for this operating agreement template.
Also include the contact information for the company’s registered agent, who is responsible for accepting legal and tax paperwork on the company’s behalf.
The limitation of liability clause is meant to safeguard all LLC participants from the repercussions of misdirected and/or costly lawsuits. It states that members and workers are not personally liable for the Company, any of its subsidiaries, or other members’ debts, obligations, or liabilities.
Membership and authority
An LLC member is a person or company who owns a membership interest in the company. Consider them owners, similar to shareholders in a firm.
Answer the following questions regarding the company’s membership in this section:
Who are the participants? What membership category do they fall into?
What is the total number of voting and non-voting capital units issued? What may it be used for?
Member meetings are held when, why, and where.
- How much of the corporation does each member own?
- How may shareholders use their voting rights to manage the company?
- How many participants must attend a meeting in order for a decision to be taken and implemented?
- Is it possible for a member to outsource their authority and responsibilities to other agents?
- What is the procedure for adding new members?
- Is it possible for members to sell their shares in the company?
Throughout this operating agreement sample, you’ll notice situations when important corporate decisions can only be made with the members’ unanimous assent.
Note that the lone owner of a single-member LLC retains 100 percent ownership of the company.
Contributions to capital
When each member is first added to the LLC, how much capital (money or other assets) should they provide to assist pay its setup and operations? Where is the cash kept? Is it possible to cancel it? Should new members make a financial contribution? Is it possible to make interest on this money? This section answers all of these questions and more.
Distribution, profit, and loss
Explain how the LLC’s profit or loss should be computed and distributed among its members. A multi-member LLC’s profit and loss is distributed annually in proportion to their percentage ownership stake, according to this agreement.
The agreement states that expenses linked to the company’s management and organisation are normally handled by the company. You should also emphasise that firm members are not paid a salary for their work.
Keeping financial records
This page explains how the LLC keeps its books and records, including:
Where should each member’s records, capital accounts, the company’s certificate of formation, income tax statements, financial statements, a copy of this agreement, and all other LLC reports be kept?
- How frequently should company audits be performed?
- Where should the company’s funds be deposited?
- How members might request that the company’s books be inspected
- Other provisions concerning the LLC’s taxability
Liquidation and dissolution of businesses
If the company must close permanently, this section can assist members in reaching an agreement on the dissolution and liquidation process. We’ve explained the many circumstances under which an LLC might be legally dissolved in this agreement template.
After the company is dissolved, an elected Liquidating Member is in charge of liquidating the firm’s assets and distributing the money to the members.
This is a pretty common clause in most multi-party contracts. It basically provides that members will not be held liable for any actions taken on behalf of the company unless they were done with malicious intent.
The contract also states that the company has the option to obtain an insurance coverage that protects the members in the event of legal action.
This section explains how the LLC’s information and trade secrets can only be used for the LLC’s benefit and not shared with others. Its purpose is to protect the LLC’s intellectual property.
Warranty and representations
Members acknowledge in this article that they are receiving ‘ownership’ of the company’s membership units only for investment purposes, and that they have no plans to resell, distribute, or share them. They must also not purchase membership on behalf of others. It’s also a good idea to spell out the terms under which membership can be sold or transferred.
The authorization clause specifies that members must be of legal age to enter into this agreement and that their acts will not violate any LLC laws.