If you’re thinking about forming a member-managed LLC, you’ll need to create an operating agreement. This document spells out the rights and responsibilities of the LLC’s members, as well as how the LLC will be managed and operated. Keep reading to learn more about how to create a member-managed LLC operating agreement.
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Overview
Introduction
A limited liability company (LLC) is a business entity created under state law. An LLC is structured to provide its owners, called members, with limited personal liability for the debts and obligations of the LLC. While an LLC can have only one member, most LLCs have multiple members. A member-managed LLC is an LLC whose affairs are managed by its members.
The operating agreement of a member-managed LLC sets forth the rules and regulations governing the internal affairs of the LLC. The operating agreement should be customized to fit the specific needs of the LLC and its members.
While an operating agreement is not required by law in all states, it is highly recommended that all member-managed LLCs have one. Without an operating agreement, the members of the LLC will be governed by default rules established by state law. These default rules may not be optimal for the particular circumstances of the LLC or its members.
An operating agreement can help prevent disagreements among the members by setting forth each member’s rights and responsibilities with respect to the management and operation of the LLC. Operating agreements also typically contain provisions regarding such matters as voting rights, buy-out provisions, transfer restrictions, and dissolution procedures
What is a Member-Managed LLC?
A member-managed LLC is a limited liability company that is managed by its members rather than by a separate management team. This type of LLC is the most common, and it gives all members the ability to participate in the day-to-day management of the business.
Operating agreements are not required in all states, but they are highly recommended. An operating agreement outlines the rules and regulations that will govern your LLC, and it can help prevent disagreements or misunderstandings down the road.
If you’re forming a member-managed LLC, your operating agreement should include provisions for:
-How members will join and leave the LLC
-The percentage of ownership interest that each member has
-The duties and responsibilities of each member
-How decisions will be made
-How profits and losses will be distributed
-What will happen if a member dies or becomes disabled
Creating an operating agreement is an important step in setting up your LLC, so be sure to take the time to do it right.
The Benefits of a Member-Managed LLC
There are many benefits to having a member-managed LLC, including the following:
• All members are actively involved in the management of the LLC, which can help make decision-making quicker and easier.
• All members have a say in how the LLC is run and can offerinput on important decisions.
• Members can be held personally liable for the debts and obligations of the LLC, which gives them a greater incentive to carefully manage the LLC’s finances.
A member-managed LLC can also be less expensive to operate than a manager-managed LLC because there is no need to hire a separate manager.
How to Create a Member-Managed LLC Operating Agreement
A member-managed LLC operating agreement is a legally binding document that outlines the management and ownership structure of your LLC. This agreement is used to establish the LLC’s member rules, regulations, and responsibilities. It also establishes the LLC’s financial structure and operating procedures. Creating a member-managed LLC operating agreement is a simple process that can be done in a few steps.
Define the business purpose of the LLC
The business purpose of the LLC should be stated in the operating agreement. The LLC must be organized for a lawful business purpose and cannot be organized for illegal activities. The business purpose statement may be general, such as “the LLC will engage in any lawful business activity.” Alternatively, the statement can be specific, such as “the LLC will engage in the business of selling dietary supplements.”
Choose a name for the LLC
It is important to choose a name for the LLC that is not already in use by another business entity within the state in which you plan to file your Articles of Organization. The name of the LLC must also meet any additional requirements of the state, such as containing certain words or abbreviations. You can check with your state’s Secretary of State office or business division to find out what their specific requirements are.
Draft the Articles of Organization
The first step in creating a member-managed LLC is to draft the articles of organization. The articles of organization are filed with the state in which the LLC will do business and are used to establish the LLC’s legal existence. The articles of organization must contain the name of the LLC, the names of the members, the LLC’s purpose, the principal place of business and the duration of the LLC. In some states, the articles of organization must also indicate whether the LLC will be member-managed or manager-managed.
After the articles of organization have been filed, the members must draft an operating agreement. The operating agreement is a contract between the members that sets forth their rights and responsibilities. The operating agreement should addressed issues such as how decisions will be made, what happens if a member dies or leaves the LLC, how new members can be admitted to the LLC and how profits and losses will be distributed.
Create the Operating Agreement
There are a few things you’ll need to do to create a member-managed LLC operating agreement. First, you’ll need to decide on the name of your LLC and choose a registered agent. Next, you’ll need to determine the initial members and their respective ownership percentages. Finally, you’ll need to draft the operating agreement itself.
File the paperwork with the state
In order to form a member-managed LLC, you will need to file paperwork with the state in which you plan to do business. This paperwork is typically called Articles of Organization or a Certificate of Formation. The LLC filing fee is usually around $100, but it may be more or less depending on the state in which you form your LLC. You can typically find the forms you need and instructions for filing on your state’s website.
In addition to filing these forms with your state, you will also need to create an operating agreement. This document outlines the ownership and governance structure of your LLC and can help resolve disputes amongst LLC members. While not all states require that you have an operating agreement in place, it is generally a good idea to have one regardless.
Conclusion
A member-managed LLC operating agreement is a key document for any LLC. This agreement outlines the roles and responsibilities of each member, as well as how decisions will be made and disputes resolved. Creating an operating agreement can help prevent misunderstanding and conflict among members, and it can give your LLC a professional appearance.
When drafting your operating agreement, be sure to include provisions for all of the topics covered in this article. You may also want to consult with an attorney or accountant to ensure that your agreement is complete and accurate. Once you have created your operating agreement, be sure to keep it in a safe place so that it is available if you ever need to reference it.
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