Understanding LLC Operating Agreements
An LLC operating agreement identifies the company, states its ownership, defines member duties and lays out other structural features of the business. It usually includes basic information about the LLC and its owners (known as members), the company’s elected tax treatment and guidelines for how certain key procedures will be handled.
An operating agreement is a legally binding document that outlines how a Limited Liability Company (LLC) is organized and managed. Most states do not require an operating agreement. However, each state has statutes and rules that outline how a business can operate, such as the adding or removing of members.
An LLC operating agreement contains clear provisions about each owner’s contributions to the business, their share of profits and their responsibilities to the company and other members. As a good dispute resolution tool, it offers an effective way of setting the ground rules for the company.
Legal Importance and Requirements
While a written operating agreement is almost never required by state law to start or run an LLC, failing to create one could open the business owner up to personal liability and open the LLC to legal problems down the road.
The Operating Agreement outlines the dissolution rules, membership change rules, and other minute details and principles on which the LLC structure is formed.
Operating agreements are often more extensive than bylaws, including the percentage capital contribution of members, how profits and losses are distributed, and tax structure.
Formation under state law is only the first step in completing the LLC organizational process. An LLC operating agreement tweaks the terms of a limited liability company according to the specific necessities of its members and outlines the financial and operational dynamics in a structured way.
How to Write an LLC Operating Agreement
Draft sections on:
- Introduction
- Ownership
- Distribution of profits and losses
- Member changes
- Tax structure
- Dissolution
Define:
- Meetings
- Quorums
- Notice periods
- Member authority
Consider including an arbitration clause.
State-Specific Provisions: Missouri
In Missouri, a limited liability company needs an operating agreement to outline LLC ownership, management, members’ rights and responsibilities, and it is legally binding, although it’s not filed with the state. An LLC should customize its Missouri operating agreement to structure and operations, while also adhering to state laws.
Foreign LLCs must register with Missouri’s Secretary of State, appoint an in-state registered agent, and file the "Application for Registration of a Foreign Limited Liability Company", with a fee of $50 for online filing or $105 by mail.
The purpose of an LLC operating agreement is to define rules and guidelines for a business. It is particularly important to keep the operating agreement up to date in Missouri, as a single-member LLC is considered the same as a multiple-member LLC from a legal perspective.