WHAT SHOULD BE IN A LIMITED LIABILITY COMPANY OPERATING AGREEMENT?
As a business attorney, I do draft limited liability operating agreements for my clients. Many uninformed business owners may have a DIY LLC set up and no or a minimalist operating agreement that does not address the inevitability of certain business cycle issues and life events of the members that may result in a business being with no contingency plans for any number of occurrences. I tell LLC members to check the existing operating agreement and look for basics such as are included in the following outline. If the existing LLC operating agreement does not have provisions that cover these basic topics they should see an experienced business lawyer and have a new or amended operating agreement prepared.
BASIC LIMITED LIABILITY OPERATING AGREEMENT OUTLINE
FACTS
DEFINITIONS
FORMATION OF COMPANY
Name
Place of Business
Registered agent
BUSINESS OF COMPANY
MANAGEMENT
By Members
By Manager/s – tenure? how many? how elected how removed? how to fill vacancies?
Are there Officers?
LIMITATIONS ON AUTHORITY; DUTIES
What can a member do? bind company?
What can a Manager do? –bind the company? –unilaterally or with member consent?
INDEMNITY OF THE MANAGER, MEMBERS AND OFFICERS
RIGHTS AND OBLIGATIONS OF MEMBERS
Usually no personal liability for LLC debt or losses
Do they have voting rights or can only the Manager approve issues?
Is unanimous consent of members required?
Are there required member meeting?
Can there be actions without a meeting with written consent?
Can a member participate in a meeting via telephone or video?
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
Initial member contributions
Additional member contributions
DISTRIBUTIONS TO MEMBERS
ALLOCATIONS OF NET PROFITS AND NET LOSSES
TAXES –
Tax matters Member – Income Tax Elections –Tax returns & Tax Deficiencies
BOOKS AND RECORDS
TRANSFERABILITY OF MEMBERSHIP INTERESTS
General Prohibition without member consent
Right of first refusal
Appraisal value of LLC
Death or Disability of a Member
Involuntary and Other Lifetime Transfers
Conditions of Permitted Transfers
Limitations – i.e.-based on possible tax election impact
CONFLICTS OF INTEREST
DISSOLUTION, CESSATION AND TERMINATION
WINDING UP, LIQUIDATION, DISTRIBUTION OF ASSETS
MISCELLANEOUS PROVISIONS
Application of Law
Rights and Remedies Cumulative
Notices
Conflicts- Is Mediation required?