Can an LLC Operating Agreement Be Amended?

By Anna Assad

The operating agreement of a limited liability company sets the guidelines and regulations for the company's business functions and structure. The agreement is typically prepared by the founding owner or owners, referred to as members, and kept by the LLC. An operating agreement is a legally binding document once signed by LLC's members, functioning as a contract. The agreement may be amended by the members if changes are needed.

The operating agreement of a limited liability company sets the guidelines and regulations for the company's business functions and structure. The agreement is typically prepared by the founding owner or owners, referred to as members, and kept by the LLC. An operating agreement is a legally binding document once signed by LLC's members, functioning as a contract. The agreement may be amended by the members if changes are needed.

Features

The exact content of an operating agreement varies by company, but common areas addressed are the procedures for admitting a new member or expelling a current one, the procedures and rules for profit distributions to members and voting rights. The LLC ownership percentages of each member are set out, as well as the authority and obligations of all members and the directions for buying and transferring shares of deceased or resigning members. As members leave and the business changes, amendments to the operating agreement may be necessary to reflect the LLC's current state of operations.

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Benefits

The operating agreement sets out what is expected of each member and concrete procedures for handling business events. Some states do not permit unequal treatment of members, and treating members differently with regard to the same issue may open up the LLC to a lawsuit. A written agreement provides the LLC with a set of rules to follow each time the company takes action or makes a decision, and a rule about the number of votes needed for any amendments can be included. An LLC that does not have a written operating agreement may be subject to the default provisions found in the state's LLC legislation.

Considerations

Smaller changes, such as adding a new member, can typically be handled by the execution of an amending document that cites the previous section, adds the new information and is passed by the necessary number of votes from the members. The amendment is then attached to or kept with the original agreement. Larger alterations to an operating agreement may be difficult, especially if multiple sections are being revised; a new agreement may need to be drafted instead.

Misconceptions

Operating agreements cannot violate state laws. State LLC laws generally allow the agreement to govern the LLC's affairs, but some limitations apply, like a distribution to a member in an amount that wouldn't permit the LLC to pay its creditors once the funds have been transferred. Amendments to the operating agreement are subject to the same limitations found in state laws.

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References

Related articles

How do I Get Out of an LLC Partnership?

A limited liability company, or LLC, is a form of business entity created by state LLC statutes. An LLC combines the flexibility and pass-through taxation of the traditional partnership with the limited liability protections of a corporation. An LLC's flexibility provides partners, called members, the ability to draft their own procedures for withdrawing from the LLC by executing an operating agreement. If an LLC does not have an operating agreement, state LLC statutes provide a default procedure for member withdrawal from an LLC.

How do I Change a Member on an LLC in WI?

Wisconsin law regulates the creation and maintenance of all businesses organized in Wisconsin, including limited liability companies, or LLCs. The owners of an LLC are called members. During the life of an LLC, it may become necessary to either add or remove LLC members. Neither the Wisconsin Department of Financial Institutions nor the Wisconsin Department of Revenue requires LLCs to disclose either a list of their members or changes to the membership of an LLC.

LLC Contract Information

Limited liability companies, or LLCs, are governed by state legislation. As of 2010, many states did not require LLCs to create operating agreements. Even when an operating agreement is not required, however, it can help prevent disputes from arising, and can help to resolve them when they do arise. An operating agreement can also prevent state default rules from deciding the terms of the relationships among the members.

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