How to Write an S Corp. Operating Agreement

By Stephanie Kurose, J.D.

How to Write an S Corp. Operating Agreement

By Stephanie Kurose, J.D.

An S corporation is a type of business that has elected to be taxed under Subchapter S of the Internal Revenue Code. Although there are some differences between an S corporation and a C corp., the former still must create an operating agreement, or bylaws, that specify how to govern the company. Each state has its own unique laws that dictate what a company must include in an operating agreement. When drafting the agreement, the business' owners must be aware of and follow the requirements of its state.

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1. Research the corporate laws of your state.

States have jurisdiction over the businesses formed within their borders, so state law governs what an S corp. must include in its operating agreement. Before you begin drafting this document, familiarize yourself with the corporate laws in your locality.

2. Include basic information for the corporation.

At the top of the document, list the official registered name of the company, its registered address, the principal place of business, and any "doing business as" or trade names under which it operates.

3. Provide information about key players.

Indicate the number of directors the business can appoint and list their term length. State law often dictates how many directors a company must have. List the officers—such as the CEO and CFO—and their term length, then describe each officer's duty.

4. Describe the board of directors' responsibilities.

Note which types of decisions the board of directors can make and which types of decisions the officers or the shareholders can make. The law may place restrictions on certain issues. For example, all states require that only shareholders may vote to dissolve a corporation.

5. Include information on shares and stocks.

One of the main characteristics of an S corporation is that it can only have up to 100 shareholders and may issue only one class of stock. Another requirement is that only individuals—not partnerships or other business entities—can be shareholders. Include these requirements, and therefore the company's intention to follow them, in the document.

6. Include meeting information.

Corporations must hold meetings at least once a year. Include a section that lists the frequency and location of any shareholders' and directors' meetings. Declare how many directors or shareholders must be present.

7. Describe plans for record keeping.

Maintaining business records is good practice and is beneficial in the case of audits or legal disputes. Add a section in the agreement that details what records the business must keep. State law requires companies to keep certain records, such as meeting minutes of the shareholders' or directors' meetings. The law may also require corporate officers to give shareholders access to company records for inspection.

8. Discuss how to amend the agreement.

Provide a section that describes how the company may amend the operating agreement. Whatever is decided will be binding and enforceable in court.

One of the first and most important steps to establishing your company's status as an S corporation is to create its operating agreement. Learn as much as you can to ensure that you are fulfilling the legal requirements necessary for your state, and include basic information such as who the key executives are and how shares and stocks will be distributed so your company can launch smoothly.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.