A Sample of an Operating Agreement for an LLC

by William Pirraglia
LLC operating agreements are essential for the business to operate smoothly.

LLC operating agreements are essential for the business to operate smoothly.

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While not usually a state requirement, an LLC operating agreement is its most important document. It contains the critical information about the composition of the LLC and also serves as the primary management document for company operations. All operating agreements should contain the same basic information, but LLC owners can add further definitions and explanations of ownership and operational structure. The more complete the operating agreement, the more limited liability protection for the LLC owners.

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Ownership Percentage, Rights, and Responsibilities of Members

In an LLC, owners are called members. The operating agreement identifies each member's percentage of ownership in the company. Members have certain ownership rights and responsibilities that the agreement should also outline. The operating agreement should note if any member has agreed to specific duties beyond just monetary investment. For example, if a member is also to serve as accountant or legal counsel for the LLC, the agreement should indicate those responsibilities.

Members' Voting Rights

Members have intrinsic rights to vote on LLC activities. Operating agreements should reinforce these rights. Should one or more members agree to give up voting rights or to vote on only specified issues, the operating agreement should clearly state this decision. This section of the operating agreement is particularly important should future problems or disputes arise.

Member Meetings and Voting Procedure

Unlike corporations, which must hold regular meetings and keep detailed records thereof, LLCs are under no such requirement. However, all businesses should hold ownership meetings to keep owners informed and for making important company decisions. Operating agreements should specify the intention and commitment of members to schedule and attend regular meetings of the LLC. The agreement should also explain the voting procedure. For example, if you decide that only members present at meetings can vote on issues, state this policy. Or, you may decide that telephone or email votes are acceptable. Once again, clearly explain the agreed upon voting procedure so all members are aware of the policy.

Management Plans

Defining the managerial structure is a key feature in the LLC operating agreement. It should indicate whether the LLC is member-managed or manager-managed. A member-managed LLC is managed by one or more owners. You can also decide to employ a manager, who is not a member. The manager-managed LLC has a paid employee responsible for company operations. All operating agreements -- and many state-required articles of organization -- must indicate whether the member or manager managed option is selected. The agreement should also indicate the specific authority of the managing individual, particularly if there are restrictions.

Buy and Sell Provisions

The operating agreement should address buyout and sellout rules when a member decides to leave the LLC. Members can also die or suffer disability; the operating agreement should clearly state how the LLC would handle these ownership changes. For example, if the LLC loses a member, the operating agreement may state that the company may purchase this ownership. Conversely, you might allow a member to sell his ownership to another with unanimous approval of the remaining members. You can choose to adopt any buy-sell provisions agreed to by all members.