THIS OPERATING AGREEMENT (the "Agreement") is entered into at [DATE] between the Parties executing this Operating Agreement as members of [NAME OF THE COMPANY] LLC (the "Company"), and all of those who shall later be admitted as members (individually, a "Member"; and collectively, the "Members"), identified in
(i) The Parties have created a Limited Liability Company under the laws of the state of [INSERT THE STATE]
(ii) The Parties contribute to the Company capital as described in Exhibit A attached to this Agreement
(iii) The Parties desire to promote their mutual interests by making provisions for the operation of such entity and by imposing certain restrictions and obligations upon the parties as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein, it is mutually agreed and covenanted by and between the Parties hereby as follows:
1.1. Formation. The Parties hereto organize this limited liability company pursuant to the provisions of the [INSERT THE STATE] Limited Liability Company Act, as amended (the "Act") by the filing of Articles of Organization ( the "Articles") with the Department of Licensing and Regulatory Affairs of the State of INSERT THE STATE as required by the Act.
1.2. Name. The business of the Company will be conducted under the name [NAME OF THE COMPANY] LLC.
1.3. Duration. The Company shall continue in existence for the period fixed in the Articles for the duration of the Company or until the Company dissolves and its affairs are wound up in accordance with the Act or this Operating Agreement.
1.4. Office. The Company will maintain its principal business office within the State of [INSERT THE STATE] at the following address: [INSERT ADDRESS], [CITY], and [STATE].
1.5. Intention for Company. The Members have formed the Company as a limited liability company under the Act. The Members specifically intend and agree that the Company not be a partnership or joint venture, but a limited liability company under and pursuant to the Act. No Member shall be construed to be a partner in the Company or a partner of any other Member or person, and the Articles, this Operating Agreement, and the relationships created by and arising from them shall not be construed to suggest otherwise. The Members likewise specifically intend and agree that for purposes of Federal and State taxation, the Company shall be treated as a "pass-through" entity and shall not be subject to entity-level taxation of any kind.
1.6. Admission of Additional Members. Except as otherwise expressly provided in this Agreement, no additional members may be admitted to the Company through issuance by the company of a new interest in the Company without the prior unanimous written consent of the Members.
2.1. Manager. The Company shall be managed by one or more Managers. Except as otherwise provided in this Operating Agreement, the ordinary and usual decisions concerning the business and affairs of the Company shall be made by the Manager. The Members, within the authority granted by the Act and the terms of this Agreement shall have the complete power and authority to manage and operate the Company and make all decisions affecting its business and affairs.
2.2. Manager’s Power. The Manager has the power to act on behalf of the Company and to conduct all matters necessary or convenient in relation to the Company’s business and affairs, including but not limited to:
(i) purchase, lease, or otherwise acquire any real or personal property;
(ii) sell, convey, mortgage, grant a security interest in, pledge, lease, exchange or otherwise dispose of or encumber any real or personal property;
(iii) open one or more depository accounts and make deposits into, write checks against, and make withdrawals against such accounts;
(iv) borrow money and incur liabilities and other obligations;
(v) enter into any and all agreements and execute any and all contracts, documents, and instruments,
(vi) engage employees and agents and define their respective duties and compensation;
(vii) establish pension plans, trusts, profit-sharing plans, and other benefit and incentive plans for Members, employees, and agents or the Company;
(viii) obtain insurance covering the business and affairs of the Company and its property, and the lives and well-being of its Member employees and agents;
(ix) begin, prosecute, or defend any proceeding in the Company's name, and
(x) participate with others in partnerships, joint ventures and other associations and strategic alliances.
2.3. Decisions by Members. Whenever in this Agreement reference is made to the decision, consent, approval, judgment, or action of the Members, unless otherwise expressly provided in this Agreement, such decision, consent, approval, judgment, or action shall mean a Majority of the Members.
2.4. Withdrawal by a Member. A Member has no power to withdraw from the Company, except as otherwise provided in Section 7.
2.5. Organization Expenses. All expenses incurred in connection with organization of the Company will be paid by the Company.
2.6. Salary. No salary will be paid to a Member for the performance of his or her duties under this Agreement unless the salary has been approved in writing by a Majority of the Members.
2.7. Legal and Accounting Services. The Company may obtain legal and accounting services to the extent reasonably necessary for the conduct of the Company's business.
3.1. Initial Capital Contributions. Each Member shall make equal contributions to the capital of the Company as described in Exhibit A attached to this Agreement.
3.2. Additional Contributions. No Member shall be obliged to make any additional contribution to the Company's capital without the prior unanimous written consent of the Members.
3.3. No Interest on Capital Contributions. Members are not entitled to interest or other compensation for or on account of their capital contributions to the Company except to the extent, if any, expressly provided in this Agreement.
4.1. All funds of the Company shall be deposited in the Company’s name in a bank account or accounts as chosen by the Members.
4.2. Withdrawals from any bank accounts shall be made only in the regular course of business of the Company and shall be made upon such signatures as the Members from time to time may designate.
5.1. Allocations. Except as may be required by the Internal Revenue Code of 1986, as amended ("Code"), or by this Operating Agreement, the Company's net profits, net losses, and other items of income, gain, loss, deduction, and credit shall be allocated among the Members in accordance with each Member's Contribution Ratio.
5.2. Distributions. Except as provided otherwise in this Agreement, all distributions of cash or other property shall be made to the Company Members in proportion to their percentage interests in the Company on the date of the distribution. All distributions shall be made at such time as is determined by the Members of the Company. All amounts withheld pursuant to the Code or any provisions of state or local tax law with respect to any payment or distribution to the Members from the Company shall be treated as amounts distributed to the relevant Member or Members pursuant to this Section 5.2
5.3. Limitation Upon Distributions. No Member has any right to any return of capital or other distribution except as expressly provided in this Agreement. No Member has any drawing account in the Company.
6.1. The Company’s assets shall be deemed owned by the Company as an entity, and the Member shall have no ownership interest in such assets or any portion thereof. Title to any or all such Company assets may be held in the name of the Company, one or more nominees, as the Member may determine.
6.2. Except as limited by the Statutes, the Member may engage in other business ventures of any nature, including, without limitation by specification, the ownership of another business similar to that operated by the Company. The Company shall not have any right or interest in any such independent ventures or to the income and profits derived therefrom.
7.1. Restrictions on Transferability of Interests. No Member shall have any right to sell, transfer, or assign an interest in the Company without the written consent and approval of all of the Members. The purchaser, transferee, or assignee of an interest in the Company shall not become a Member of the Company except as provided for in Section 7.2.
7.2. Additional Members. After the formation of the Company, any person acceptable to the majority in interest of the Member(s) may become a Member of the Company for such consideration as the Member(s) by their majority in interest shall determine. Any additional Member must acknowledge in writing all of the terms and provisions of this Operating Agreement or of any other operating agreement of the Company and must agree to be bound
8.1. General. Any sale, assignment, transfer, exchange, mortgage, pledge, grant, hypothecation, or other disposition of any membership interest shall be made only in
compliance with this Section 8. No membership interest shall be disposed of if :
(i) the disposition would cause a termination of the Company under the Code;
(ii) the disposition would not comply with all applicable state and federal securities laws and regulations; or
(iii) the assignee of the membership interest fails to provide the Company with the information and agreements that the Members may require in connection with such a disposition. Any attempted disposition of a membership interest in violation of this Section 8 is void.
8.2. Permitted Dispositions. Subject to the provisions of this Section 8, a Member may assign the Member's membership interest in the Company in whole or in part. The assignment of a membership interest does not itself entitle the assignee to participate in the management and affairs of the Company or to become a Member. Such assignee is only entitled to receive, to the extent assigned, the distributions to which the assigning Member would otherwise be entitled.
8.3. Admission of Substitute Members. An assignee of a membership interest shall be admitted as a substitute Member and shall be entitled to all the rights and powers of the assignor only if the other Members unanimously consent. If admitted, the substitute Member has, to the extent assigned, all of the rights, powers, restrictions, and liabilities of a Member.
9.1. Voting. All Members shall be entitled to vote on any matter submitted to a vote of the Members. The Members shall have the right to vote on all of the following:
(i) the dissolution of the Company pursuant to Section 10 of this Operating Agreement;
(ii) the merger of the Company;
(iii) a transaction involving an actual or potential conflict of interest between a Member and the Company;
(iv) an amendment to the Articles; and
(v) the sale, exchange, lease, or other transfer of all or substantially all of the Company's assets other than in the ordinary course of business.
9.2. Required Vote. Unless a greater vote is required by the Act or the Articles, the affirmative vote or consent of a majority of all the Members entitled to vote or consent on a matter is required.
9.3. Meetings. An annual meeting of Members for the transaction of such business as may properly come before the meeting shall be held at the time, date, and place that the Members shall determine. Special meetings of Members for any proper purpose or purposes may be called at any time by the holders of at least [INSERT THE PERCENTAGE] of the Contribution Ratios of all Members. The Company shall deliver or mail written notice stating the date, time, place, and purpose(s) of any meeting to each Member entitled to vote at the meeting. The notice shall be given not less than [INSERT NUMBER OF DAYS] or more [INSERT NUMBER OF
DAYS] days before the meeting date. All meetings of Members shall be presided over by a Chairperson, designated by the Members.
9.4. Consent. Any action required or permitted to be taken at an annual or special meeting of the Members may be taken by consent without a meeting, prior notice, or a vote. The consent must be in writing, set forth the action taken, and be signed by the Members having at least the minimum number of votes necessary to authorize or take such an action at a meeting at which all membership interests entitled to vote on the action are present and voting. The written consent shall also bear the date signifying when each Member signed the consent. Prompt notice of the taking of action without a meeting by less than unanimous written consent shall be given to all Members who did not consent in writing to the action.
10.1. Dissolution. The Company shall dissolve and its affairs shall be wound up on the first to occur of the following events:
(i) at any time specified in the Articles or this Operating Agreement;
(ii) on the happening of any event specified in the Articles or this Operating Agreement;
(iii) by the unanimous consent of all the Members;
(iv) sale, transfer, or other disposition of all or substantially all of the property of the Company;
(v) the agreement of all of the Members;
(vi) by operation of law; or
(vii) on the death, withdrawal, expulsion, bankruptcy, or dissolution of a Member or the occurrence of any other event that terminates the continued membership of a Member in the Company unless within eighty ninety (90) days after the dissociation of membership, a majority of the remaining Members consent to continue the business of the Company and to the admission of one or more Members as necessary.
10.2. Winding Up. On the dissolution of the Company (if the Company is not continued), the
Members must take full account of the Company's assets and liabilities, and the assets will be liquidated as promptly as is consistent with obtaining their fair value, and the proceeds, to the extent sufficient to pay the Company's obligations with respect to the liquidation, will be applied and distributed, after any gain or loss realized in connection with the liquidation has been allocated in accordance with Section 5 of this Agreement, and the Members' capital accounts have been adjusted to reflect the allocation and all other transactions through the date of the distribution, in the following order:
(i) to payment and discharge of the expenses of liquidation and of all the Company's debts and liabilities to persons or organizations other than Members;
(ii) to the payment and discharge of any Company debts and liabilities owed to Members;
10.3. Death of Member. Upon the death of the Member, the Company shall be dissolved. By separate written documentation, the remaining Members shall designate and appoint the individual who will wind down the Company’s business and transfer or distribute the Member's Interests and Capital Account as designated by the Member or as may otherwise be required by law.
10.4. Disability of Member. Upon the disability of a Member, the Member may continue to act as Manager hereunder or appoint a person to serve until the Member's Interests and Capital Account of the Member have been transferred or distributed.
11.1. Books and Records. The Company shall maintain complete and accurate books and records of the Company's business and affairs as required by the Act. Such books and records shall be kept at the Company's registered office.
11.2. Fiscal Year, Accounting. The Company's fiscal year shall be the calendar year. The accounting methods and principles to be followed by the Company shall be as selected by the Members from time to time.
11.3. Reports. The Members shall cause to be provided to all of the Members, in the time, manner, and form that the Members determine, reports concerning the financial condition and results of operation of the Company and the Members' capital accounts. Such reports shall be provided at least annually, as soon as practicable after the end of each calendar year, and shall include a statement of each Member's share of profits and other items of income, gain, loss, deduction, and credit.
11.4. Members' Accounts. The Company shall maintain separate capital accounts for each Member. Each Member's capital account shall reflect the Member's capital contributions and increases for the Member's share of any net income or gain of the Company. Each Member's capital account shall also reflect decreases for distributions made to the Member and the Member's share of any of the Company's losses and deductions.
12.1. Limitation of Liability. Unless otherwise provided by law or expressly assumed, a person who is a Member shall not be liable for the acts, debts, or liabilities of the Company. The personal liability of each Member shall be limited to their respective investment in the Company.
12.2. Indemnification. The Company shall indemnify any person who was or is a party defendant or is threatened to be made a party defendant, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a Member of the Company, Manager, employee or agent of the Company, or is or was serving at the request of the Company, against expenses (including attorney's fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the Members determine that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company, and with respect to any criminal action proceeding, has no reasonable cause to believe his/her conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of "Nolo Contendere" (“I do not wish to contend”) or its equivalent, shall not in itself create a presumption that the person did or did not act in good faith and in a manner which he reasonably believed to be in the best interest of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his/her conduct was lawful.
13.1. Every membership interest in the Company shall be evidenced by a Certificate of Membership issued by the Company.
13.2. Each Certificate of Membership shall set forth the name of the Member holding the membership interest and the Member’s Percentage Interest held by the Member.
14.1. Section Headings. The section headings contained in this Operating Agreement have been inserted only as a matter of convenience and for reference and in no way shall be construed to define, limit, or describe the scope or intent of any provision of this Operating Agreement.
14.2. Counterparts. This Operating Agreement may be executed in several counterparts, each of which will be deemed an original, but all of which will constitute one and the same.
14.3. Entire Agreement. This Operating Agreement and its exhibits constitutes the entire agreement among the Parties and contains all of the agreements between the Parties with respect to the subject matter. This Operating Agreement supersedes any and all other agreements, either oral or written, between the Parties with respect to the subject matter.
14.4. Severability. The invalidity or unenforceability of any particular provision of this Operating Agreement shall not affect the other provisions and this Operating Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.
14.5. Heirs, Successors, and Assigns. Each and all of the covenants, terms, provisions, and agreements herein contained shall be binding upon and inure to the benefit of the Parties hereto and, to the extent permitted by this Agreement, their respective heirs, legal representatives, successors, and assigns
14.6. Amendment. This Operating Agreement may be amended or revoked at any time by a written agreement executed by all of the Parties to this Operating Agreement. No change or modification to this Operating Agreement shall be valid unless made in writing and signed by all Parties.
14.7. Waiver. The failure of any Party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Operating Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation.
14.8. Rights and Remedies Cumulative. The rights and remedies provided by this Operating Agreement are cumulative and the use of any one right or remedy by any Party shall not preclude or waive the right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the Parties may have by law, statute, ordinance or otherwise.
14.9. Severability. If any term or provision of this Agreement is held to be void or unenforceable, that term or provision will be severed from this Agreement, the balance of the Agreement will survive, and the balance of this Agreement will be reasonably construed to carry out the intent of the Parties as evidenced by the terms of this Agreement.
14.10. Captions. The captions used in this Agreement are for the convenience of the Parties only and will not be interpreted to enlarge, contract, or alter the terms and provisions of this Agreement.
14.11. Notices. All notices, demands, requests or other communications which any of the Parties to this Agreement may desire or be required to give hereunder shall be in writing and shall be deemed to have been properly given if sent by courier or by registered or certified mail, return receipt requested, with postage prepaid, addressed as follows:
(a) if to the Company, at the principal place of business of the Company designated by the Company; and
(b) if to any Member, to the address of said Member first above written, or to such other address as may be designated by said Member by notice to the Company and the other Members pursuant to this Section 12.11.
14.12. Binding Effect. Subject to the provisions of this Operating Agreement relating to transferability, this Operating Agreement shall be binding on and shall inure to the benefit of the Parties and their respective distributes, heirs, successors, and assigns.
14.13. Dispute Resolution. The Parties shall exhaust all effort to amicably settle any dispute that may arise under this Agreement. If any dispute arises under this Agreement, the Consultant and the Client shall negotiate in good faith to settle such dispute. If the Parties fail to settle the dispute through good faith negotiations, the Parties shall refer the dispute to a mutually agreed-upon dispute resolution either in the form of mediation or arbitration in [INSERT RELEVANT JURISDICTION]·. Any costs or fees other than attorney fees associated with the mediation or arbitration will be shared equally by the Parties. If the dispute is not resolved within [INSERT NUMBER OF DAYS] business days after it is referred to the mediation or arbitration, any Party may take the matter to court. If any court action is necessary to enforce this Agreement, the prevailing Party will be entitled to recover from the other Party reasonable attorney fees, costs, and expenses in addition to any other relief to which the party may be entitled.
14.14. Governing Law. This Operating Agreement has been executed and delivered in the State of [INSERT THE STATE] and shall be governed by, construed, and enforced in accordance with the laws of the State of [INSERT THE STATE].
14.15. Attorney Fees. In the event of any suit or action to enforce or interpret any provision of this Agreement (or that is based on this Agreement), the prevailing Party is entitled to recover from the other Party, in addition to other costs, reasonable attorney fees in connection with the suit, action, or arbitration, and in any appeals. The determination of who is the prevailing Party and the amount of reasonable attorney fees to be paid to the prevailing Party will be decided by the court or courts, including any appellate courts, in which the matter is tried, heard, or decided.
15.1. The Parties hereby understand and expressly agree to the provisions laid down in the present Agreement and in good faith, undertake that all Parties shall follow the terms of this Agreement in good conscience in order to secure better growth of all Parties.
An LLC operating agreement outlines and describes the operating rules of Limited Liability Companies (LLCs). LLC operating agreements typically outline things like the daily operations of the business. They may also cover how any conflicts will be dealt with and what happens should a member of the LLC decide to leave the company for any reason. LLC operating agreements also outline the rights and responsibilities of each LLC member and detail how decisions are made, when meetings are held, and various other elements.
The best way to ensure your LLC operating agreement contains everything it should is to use a template that outlines all the key terms and clauses that you will need. At the same time, your LLC operating agreement needs to be tailored specifically to your needs. Choose a template like ours above so you can include everything you need.
The information you should include in your LLC operating agreement includes:
As well as customizing these elements of your LLC operating agreement, you may also wish to include things like:
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If operating your LLC in California, Delaware, Maine, Missouri, Nebraska, or New York, then you are required by law to have an LLC operating agreement in place. While it is not a legal requirement to have an LLC in other states, it is considered good business practice to do so. Likewise, it is good practice to have individual LLC operating agreements for each state in which you operate.
It’s also a good idea to have an LLC operating agreement even if you’re the only member at present. Having such a structure will act as a good foundation for growth and also ensure you already have procedures in place should you add members in the future as you grow.
In some states, you need to use an LLC operating agreement to ensure your business can legally trade.
Overall, an LLC operating agreement will lay out the basis for your business to operate consistently. If there is more than one member of an LLC, having the agreement in place will help ensure everyone is clear on how the business works and how profits are distributed. Having an LLC operating agreement in place also allows you to customize and optimize your rules and processes to ensure they suit your company. They’ll also be a helpful reference tool if a member later decides to withdraw, if a new member is admitted, or the LLC is dissolved.
Use an LLC operating agreement whenever you want to establish terms of business for your LLC, even if you aren’t legally required to do so. If you haven’t yet set up your LLC, you may wish to consider using other documents such as a partnership agreement to set your terms of business.
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