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What is an Operating Agreement?

An LLC operating agreement is a legal document that outlines the rules and regulations enacted by a limited liability company to provide a framework for its operation and management.

This key document provides structure during decision-making and when inevitable business-related conflicts happen between members. The operating agreement describes the ins and outs of meetings, elections of managers and officers, filling vacancies, notices, types and duties of officers, committees, assessments, and other routine items and tasks. The operating agreement can be customized for the specific needs of the members.

While operating agreements may not be mandatory for an LLC to file with their Secretary of State, some states still require an LLC to create an operating agreement for their own recordkeeping. Unlike the Articles of Organization, operating agreements are not recorded in the public records. However, they are still significant legal documents.

While an LLC’s initial filing document known as the Articles of Organization defines the basic structure of an LLC, the operating agreement is used to further define the structure of the company.

 

Basics of an Operating Agreement

Each operating agreement is specific to each organization, but the basic components are as follows:

  • Company organization, purpose, and location
  • Capital contributions and interest
  • Distribution of profits and losses
  • Management and membership powers, duties, and voting rights
  • Member and manager compensation
  • Bookkeeping responsibilities
  • Transfer of interest
  • Dissolution
  • Miscellaneous information regarding members, managers, or contributions

This document can contain any provisions relating to the business of the LLC, the conduct of its affairs, and the rights and powers of the managing members, managers, officers, and employees as long as it doesn’t conflict with state laws or the Articles of Organization.

Creating an operating agreement can be complex—but we’re happy to help. When you hire Active Filings, we include an operating agreement in our LLC formation packages. Start your LLC today with the pros at Active Filings!