An LLC, or limited liability company, has the option to create an operating agreement, a document that states how and by whom the company is to be managed. All LLCs must file an Article of Organization, a legal document incorporating the business in a specific state, but no states require that operating agreements be filed. In fact, most states have very few laws regarding the creation and documentation of an LLC operating agreement.
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LLC Operating Agreement Laws
Only a few states require that operating agreements be created in written format, and most states that require written operating agreements require them only in specific cases. In most states, operating agreements can be written or oral, and do not have to be filed with the state. Each state has default laws governing the way in which LLCs are managed, but an operating agreement can often supersede these laws. Therefore, even though a written operating agreement is not required in most states, LLCs often create written operating agreements so that default state laws do not govern the way in which those LLCs are managed.
Laws by State
Several states require written operating agreements, although the cases in which a written operating agreement is necessary vary. Alabama, Ohio and California, for example, require a written operating agreement if an LLC has more than one member. Arkansas, New Mexico and the District of Columbia require that any operating agreement created be in writing. Iowa also requires that an operating agreement be in writing, unless otherwise specifically stated in the Article of Organization. Colorado, Georgia, Connecticut and Kentucky require operating agreements for LLCs with only one member.
Operating agreements do not need to be filed with the state government agency that oversees LLCs, usually the Department of Business or a similar entity. Instead, if an LLC chooses to create an operating agreement, it should be clearly and concisely written and signed by all members of the LLC. Some LLCs chose to have their operating agreement notorized, which can authenticate certain documents, including an operating agreement. Therefore, while not filed with the state, an operating agreement can be referred to at a later date should ambiguities or legal issues arise that require guidance from a document that states how the LLC is to be managed.
Writing an Operating Agreement
An operating agreement should contain information about ownership and management of the LLC, debt responsibility on the part of all members of the LLC, buy-out and dissolution protocols, member voting rights and rules for meetings, to name a few topics.
References & Resources
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