How to Draft LLC Operating Agreements

By Lauren Miller

An operating agreement for a limited liability company (LLC) sets the parameters for how the company conducts business, how it is managed, how profits and losses are handled and other items. States have various requirements regarding operating agreements. Some require that LLCs with more than one member create an operating agreement. However, other states only recommend creating the document. Depending on the state law, agreements may be oral or written.

An operating agreement for a limited liability company (LLC) sets the parameters for how the company conducts business, how it is managed, how profits and losses are handled and other items. States have various requirements regarding operating agreements. Some require that LLCs with more than one member create an operating agreement. However, other states only recommend creating the document. Depending on the state law, agreements may be oral or written.

Compiling Operating Agreement Content

Step 1

Create a list of the items to include in an operating agreement. The Citizen Media Project at Harvard Law School provides a guide for creating an operating agreement (see References).

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Step 2

Create a blank document in a word processing program for typing the information needed for a draft of your operating agreement. Use a sample agreement as a guide for formatting and organization (see Resources).

Step 3

Type the name, initial registered office and principal office of the LLC as the first items in your document. The parts of the document can be called chapters, sections or any other segment title you prefer.

Step 4

Write a statement explaining that the agreement is in accordance with state law and commences after the proper LLC documents have been filed with the state.

Step 5

State the purpose of the LLC. This should include a short statement about the exact nature of the LLC’s business.

Step 6

Write a paragraph that explains the management structure of the LLC. LLCs are either member-managed or manager-managed. In a member-managed company, any member can make business decisions on behalf of the LLC. In a manager-managed arranged, the members elect managers to make business decisions.

Step 7

Type the names and addresses of the founding members and the managers. Include the titles of the elected managers such as president, vice-president, treasurer.

Step 8

Write a section on rules and vote-taking during meetings. Use a sample LLC operating agreement as a guide (see References).

Step 9

Write a section detailing the initial capital contributions of all members. If this is long, include an appendix with in-depth details. Include information on the obligations of members to make future contributions and if members are entitled to interest on contributions.

Step 10

Write a section on how profits and losses are allocated among members. The section may include information on the frequency of distributions and also information on how the company chooses to be taxed. The IRS allows LLCs a choice of being taxed as a partnership, corporation or sole proprietorship.

Step 11

Write a section on how interest is transferred among members including buy-out provisions and the policies for adding new members.

Step 12

Write a section detailing a dissolution policy for the LLC. This can include information on what percentage of member votes are needed in order to dissolve the company.

Step 13

Create a section that includes the signature and date of each member.

Step 14

Add appendix material as needed to expand upon details in the agreement sections.

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How to Draft an LLC Agreement

References

Resources

Related articles

California LLC Set Up Requirements

A limited liability company is a special business entity that has similar advantages to corporations, sole proprietorships and partnerships. California, like all states, has a law that governs the formation, operation and dissolution of LLCs. To form an LLC, its owners -- or “members" -- must meet certain set up requirements with the California Secretary of State.

The LLC Operating Agreement in Ohio

LLC operating agreements are fairly standard across all states, but LLC members in Ohio can take advantage of ready-made templates made specifically for the Buckeye State. Operating agreements provide a framework to guide LLC members in their duties, responsibilities and rights in the company. Although operating agreements are not legally required in all states when setting up an LLC -- Ohio does not require one --- drafting one can help members to perform their jobs efficiently.

How to Become a Partner of an LLC

A Limited Liability Company (LLC) may seek the addition of a new member (as LLC owners are called) in order to benefit from the individual's contributions or expertise in the business, or simply to replace a removed member. There are two ways to become a member. One way is to create an LLC with you listed as a founding member. The other way is to seek approval from an established LLC to be added as one of its members. Either method requires certain procedures and documents to be completed before the decision is considered final.

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