A limited liability company, or LLC, is a flexible form of business association popular among individuals looking to start a small business. Starting an LLC requires filing a document, called the articles of organization, with the state agency responsible for registering business associations. After filing the articles of organization, an LLC will typically execute an operating agreement, which is a contract that governs how the LLC is run. An operating agreement is not a public record in any state.
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Necessity of an Operating Agreement
Some states, including New York, California and Missouri, require an LLC to adopt an operating agreement as a condition of organization. Other states, such as Connecticut and Ohio, require an LLC to adopt an operating agreement in order to add or remove members. Additionally, an LLC will generally need to adopt an operating agreement in order to open a bank account. Third parties wishing to contract with an LLC may also require proof of an operating agreement to determine whether the individual with whom they are negotiating is authorized to act on behalf of the LLC. Furthermore, adopting an operating agreement is an important formality for the maintenance of an LLC. If your LLC is ever sued, failing to adopt an operating agreement may result in a judge piercing the corporate veil and holding LLC members individually liable for LLC debts.
Terms of an Operating Agreement
An operating agreement will typically specify how the LLC will be managed. An operating agreement will generally provide a procedure for conducting votes among the members of an LLC, procedures for adding and removing LLC members, investment and labor requirements for LLC members and how the LLC is to be taxed. An operating agreement will also typically contain a list of all LLC members and managers.
While some states require an LLC to execute an operating agreement, no state requires an LLC to specifically file their operating agreement with the state agency responsible for registering business associations. However, some states require an LLC to designate a primary place of business and/or a registered office. While state laws vary, states that require the designation of a primary place of business or a registered office may require an LLC to keep a copy of the LLC’s operating agreement on file at that address.
Amending an Operating Agreement
Because an operating agreement is not a public record, amending an operating agreement does not require filing with the state agency responsible for registering business associations. Amending an LLC operating agreement typically requires changing the provisions of the operating agreement and having the members of the LLC vote to approve and adopt the amended operating agreement.