Free Operating Agreement Template
For any business owner, it’s essential to have everything in order when you begin operations. An operating agreement is one of the most critical steps businesses take before starting a new venture, as it outlines the ownership structure and vital roles within the organization. It also serves as a document to refer back to should disputes arise.
Whether you’re a seasoned business owner or just setting up your first Limited Liability Company (LLC), having a formal operating agreement in place is crucial. Luckily, there’s a handy solution – a free operating agreement template from Signaturely.
What is an LLC Operating Agreement?
An LLC operating agreement is a foundational legal document that outlines the ownership structure, member roles, and operational guidelines of a Limited Liability Company (LLC). This blueprint helps to avoid misunderstandings by clearly defining member rights, responsibilities, and their percentage of ownership interest.
Moreover, it stipulates how profits and losses will be distributed, capital contributions expectations, procedures for adding an LLC member, and protocols for an unfortunate event like member withdrawal or dissolution of the LLC.
Although not always required by law, an LLC operating agreement is vital to the smooth functioning of both single-member and multi-member LLCs. It’s especially crucial for multi-member LLCs as it frames decision-making, resolves disputes, and ensures a unanimous vision.
Essentially, it equips your LLC with the guidance it needs to operate effectively, mitigating potential conflicts down the line and safeguarding the LLC members’ interests. By investing time in creating a well-structured LLC operating agreement, you build a strong foundation for your business, promoting transparency and fostering trust among the members, which ultimately contributes to your LLC’s long-term success and stability.
When to Use an Operating Agreement Template
Using an operating agreement template is advisable as soon as you decide to form an LLC. The template provides a streamlined approach to drafting this crucial legal document, saving you time and resources. As you work through the template, you’ll be prompted to consider critical aspects of your business operations that you may not have thought otherwise.
A template is particularly beneficial if you’re unfamiliar with crafting an LLC operating agreement. It ensures you don’t miss any significant components and helps maintain a professional, comprehensive document. One of the most compelling use cases for the operating agreement template from Signaturely is its flexibility; you can customize it to suit your business needs, ensuring it matches your company’s unique character and requirements.
It’s never too late to create an LLC operating agreement, either. Even if your LLC has been operating without one, drafting a contract using a template can provide clarity and structure, potentially preventing future legal conflicts.
Furthermore, you might need to modify your LLC operating agreement as your business evolves. In such cases, having a well-crafted template simplifies revisions and ensures consistency. An LLC operating agreement template is a living document adaptable to your business’s changing needs and growth, promoting sustainability and foresight in your operations.
DISCLAIMER: We are not lawyers or a law firm and we do not provide legal, business or tax advice. We recommend you consult a lawyer or other appropriate professional before using any templates or agreements from this website.
What to Include in an LLC Operating Agreement
Crafting an LLC operating agreement can seem monumental, especially when you’re not entirely sure what it should contain. However, with the proper guidance and a dependable template, you can create an agreement that’s comprehensive and tailored to your business— without the anxiety. Here are some of the key sections you should include:
Company Details
The company details section is like your LLC’s identity card and contains essential information that defines the company. Here’s what you need to include:
- Name: Start with the official, registered name of your LLC. Make sure it includes the term ‘LLC’ or ‘Limited Liability Company,’ as most states require.
- Purpose: Detail the primary purpose of your LLC. While some states allow a general purpose statement like “to engage in lawful activities,” it’s often better to be specific about your business activities.
- Registered Address: Provide the full address of your registered office. It’s not necessarily where your business operates, but it’s where official documents and notices will be sent.
- Duration/Timeline: While most LLCs are perpetual, if you’ve set up your LLC for a specific period or project, mention it here.
Building on these fundamentals, including information about any secondary business locations, is crucial, if applicable. You should also note any DBAs (“Doing Business As”) that your LLC uses. Lastly, if your LLC operates in multiple states, identify each state where you’ve registered to do business, as this can impact your tax and legal obligations.
Member Information
The member information section is a roster of all members (owners) and their details. Here’s what it typically includes:
- Basic Info: List all members’ full names and contact details.
- Ownership Interest: Specify each member’s percentage of ownership in the LLC. This is often proportional to their capital contributions.
- Membership Classes: If your LLC has different classes of members with distinct rights and responsibilities, define them here.
- Capital Contributions: Clearly state each member’s initial contribution to the LLC, whether cash, property, or services.
- Asset Distribution: Outline the protocol for distributing assets among members – profit sharing or distribution upon dissolution.
- Adding/Leaving Members: Establish the procedures for adding new members and for existing members to leave or be removed.
To further bolster the member information section, consider including details about members’ roles and responsibilities and a discussion about voting rights and procedures. You might also outline any necessary qualifications or experience for members. If there are restrictions on transferring membership interest, those should be laid out clearly. Also, if members are expected to make additional capital contributions in the future, note those expectations here.
Management, Rights, & Responsibilities
In this section, you must delve deeper into your LLC’s organizational structure and operational mechanisms, as it’s not enough to state whether your LLC is member-managed or manager-managed. Consider elaborating on how daily management tasks will be divided and the extent of authority delegated to the manager of a manager-managed LLC.
Furthermore, outline the voting protocols, such as the percentage of votes required for routine business decisions versus significant decisions like amendments to the agreement or admission of new members. Are there any supermajority rules? Who will determine the outcome of the company’s business with disagreements between members involved?
Also, you’ll want to expand on each member’s duties and responsibilities. While laying out the general obligations is essential, you might also like to discuss specific roles. Who will be responsible for financial oversight or regulatory compliance? Who will manage relationships with vendors, clients, or partners? Clear delineation of roles can preempt potential conflicts and ensure operational efficiency.
Profit & Loss Distribution
Distributing profits and losses is a crucial component of your LLC operating agreement, and it’s worth detailing your chosen methodology. Explain your preferred distribution method, whether proportional to ownership interest or otherwise. If it’s the latter, lay out a clear rationale and formula to prevent misunderstandings or disputes.
Aside from the how, remember to provide a clear timeline of distributions. Will these be monthly, quarterly, or annual distributions? And under what conditions might these distributions be delayed or accelerated?
You may also want to discuss provisions related to losses. Members might sometimes be expected to cover losses up to their capital contribution. If that’s the case for your LLC, clarify it in this section.
Moreover, consider including details about the tax implications of profit distributions. While this may not constitute legal or financial advice, it can serve as a valuable reminder for your members to consult with their advisors and prepare for their tax obligations.
Accounting & Admin
This LLC operating agreement template section lays down the financial management and administrative practices. Key areas to focus on include:
- Bookkeeping: Describe how your LLC will maintain its financial records. This usually includes specifying whether the LLC will use cash or accrual accounting methods.
- Taxes/Tax Classification: Depending on the number of members and other factors, an LLC can be taxed as a sole proprietorship, partnership, or corporation. Indicate your tax classification in this section.
- Fiscal Year: Define the fiscal year for your LLC. Most LLCs follow the calendar year, but a different 12-month period may be selected if it makes sense for your business.
- Annual Report: Some states require LLCs to submit a yearly report. In this subsection, you can detail the report preparation and submission process.
Liability
Understanding the concept of limited liability and outlining it in your LLC operating agreement is crucial to protecting each member’s assets from business liabilities. In general, the debts, obligations, or liabilities of the limited liability company are solely the responsibility of the LLC and not its members. This means that creditors of the LLC cannot go after a member’s house, car, or other personal assets to pay off LLC debts.
However, it is essential to note that this protection is not absolute. In cases where a member has personally guaranteed a business loan or if the veil of the LLC is pierced due to fraudulent or illegal activities, personal liability may arise. As such, it is recommended to explicitly state the limited liability clause in the LLC operating agreement to reaffirm this protection.
Moreover, discussing indemnification and insurance provisions can further shield members and managers from personal liability. Indemnification involves the LLC agreeing to cover any costs or damages a member or manager incurs due to lawsuits arising from their role in the LLC. Discussing workers’ compensation liability would also be pertinent if the LLC plans to have employees.
Dissolution
Dissolution is the formal process of closing your LLC. While it’s not something anyone wants to contemplate at the beginning of a venture, having a clearly defined dissolution process can prevent confusion and potential disputes if needed.
The conditions under which dissolution can occur might include a unanimous vote of the members, the death or departure of a member, or the achievement or impossibility of the limited liability company purpose. It’s also essential to detail the procedures for winding up the LLC’s affairs, such as settling the LLC’s obligations, disposing of the LLC’s properties, and distributing remaining assets among members.
The dissolution clause should also explain the “notice of dissolution” requirements and how the remaining assets are distributed to members. Are they divided based on ownership interest or some other method? And what happens if there are outstanding liabilities or pending lawsuits at the time of dissolution?
Signatures
Signatures validate an LLC operating agreement, turning it from a draft into a legally enforceable document. This section not only bears testament to each member’s acceptance of the terms but also serves as an official record of their commitment to upholding the agreement.
The value of an e-signature solution like Signaturely is paramount here. It simplifies the signing process by allowing members to sign the document digitally, wherever they may be, making it a flexible and accessible option. It also timestamps each signature, providing a chronological record of each member’s agreement. Furthermore, Signaturely’s robust security measures ensure the validity and legality of each e-signature, giving your LLC peace of mind in this final, crucial step of completing your LLC operating agreement.
Download our free example
Operating Agreement Template
We’ve got your back here at Signaturely, and we’re ready to help make stress-free agreements a reality. Forget the confusing paperwork and overwhelming legal jargon – get easy, breezy agreement templates for your business in minutes with our free template.
How to Write an Operating Agreement: 5 Tips
Drafting an LLC operating agreement can seem daunting. However, you can assemble a comprehensive and practical understanding with some guidance and the right tools. Here are five tips for crafting an operating agreement that fits your LLC’s needs.
- Customize to Your LLC: Remember, no one-size-fits-all operating agreement exists. Every LLC has unique needs and circumstances. Don’t just copy and paste from a free LLC operating agreement template. Instead, tailor it to fit your business specifics. Consider your LLC’s business model, its members, their roles, and their respective contributions.
- Use Clear Language: Legal documents, including LLC operating agreements, should be clear and precise. Avoid complex language and legalese. Remember, all members and potential legal practitioners need to understand the document.
- Be Comprehensive: An effective LLC operating agreement covers all aspects of the business, from member details and capital contributions to liability and dissolution. Ensure you’ve addressed all the essential sections outlined in the earlier part of this article.
- Create Regular Updates: An LLC operating agreement is not a “write once, forget forever” document. As your business evolves, your contract should too. Regularly review and update your agreement to reflect changes in business activities, membership, or legal requirements.
- Use Digital Tools: Drafting, reviewing, and signing an operating agreement doesn’t have to be a pen-and-paper ordeal. With Signaturely, you can efficiently draft, send, and sign your LLC operating agreement online. This can be a game-changer for multi-member LLCs, where members might be spread across different locations.
FAQs About an LLC Operating Agreement Template
Below are some of the most common questions about operating agreements.
Can I make my own operating agreement?
Absolutely! It’s encouraged. Your LLC operating agreement should be a unique representation of your business. Utilize a reliable LLC operating agreement template as your starting point, then customize it to fit your business needs and objectives. Although you can make your own, seeking legal advice to ensure you’re fully protected is always advisable.
What should an operating agreement include?
An LLC operating agreement should include critical details about the company, member information, management structure, and rights and responsibilities. It should also detail profit and loss distribution, administrative procedures, liability details, the dissolution process, and signatures of all members. It’s important to note that the specifics may vary depending on your LLC’s unique circumstances.
What’s the difference between an LLC agreement and an operating agreement?
Essentially, a limited liability company agreement and an operating agreement refer to the same internal document. Both outline a Limited Liability Company’s structure, operational rules, and guidelines. The term used may vary depending on the region or the personal preference of the individual or entity.
What is a basic operating agreement?
A basic operating agreement outlines the fundamental structure and operations of an LLC. It includes information like the name of the LLC, the members, their respective ownership percentages, the management details, and the process for distributing profits and losses. This agreement is the foundation upon which more complex operating contracts can be built, depending on the business’s requirements.
A basic operating agreement can also include details about member meetings, such as how often they should occur and what constitutes a quorum. It may also address issues like conflict resolution, amending the agreement, and the process for admitting new members. Even though it’s ‘basic,’ it’s a robust document that provides a blueprint for the LLC’s operations and management, serving as a guiding light for its members.
Do I need an operating agreement if it’s just me?
An operating agreement is still essential even if you’re a single-member LLC. It provides credibility to your business, reinforces your limited liability status, and allows you to plan for potential changes or challenges in the business.
Moreover, a well-drafted operating agreement can also help you if you decide to bring on additional members in the future. It sets a precedent for your business structure and operations and helps new members understand their roles and responsibilities. Some banks and investors may also require an operating agreement, even for a single-member LLC.
What is an alternative to an operating agreement?
While there’s no direct alternative to an operating agreement, some LLCs may use bylaws or partnership agreements. However, these do not offer the same level of detail or protection as a comprehensive operating agreement.
What are the pitfalls of an operating agreement for an LLC?
Without a well-crafted operating agreement, you might face misunderstandings among members, unequal distribution of profits and losses, and personal liability risks. Moreover, conflicts may not be resolved effectively without a clear dispute resolution mechanism, hindering business operations.
Another significant pitfall is that without an operating agreement, your LLC may default to state laws for any issues not covered in your documentation. These laws may not align with your business vision or the unique needs of your LLC. A comprehensive operating agreement allows you to retain control and guide your LLC according to your preferences and the best interests of its members.
What You Need to Remember About Operating Agreements
To round off, an LLC Operating Agreement serves as a roadmap to navigate your business journey. It’s important to remember that an LLC Operating Agreement is more than a formality—it’s the backbone of your business. Every detail, from management roles to profit distribution, needs careful deliberation. Make the process seamless and secure by leveraging digital tools like Signaturely for your signing needs, ensuring every agreement is concluded with convenience and peace of mind.
Operating Agreement Template
OPERATING CONTRACTUAL AGREEMENT
PARTIES
This Operating Contractual Agreement (hereinafter referred to as the “Agreement”) is entered into on ________________ (the “Effective Date”), by and between ________________________, with an address of ________________ (hereinafter referred to as the “Company”) and ________________with an address of ________________(Add all names of the members) (hereinafter referred to as the “Members”) (collectively referred to as the “Parties”).
TERM
This Agreement is valid from the day of its signing until ________________.
ENTITY NAME
The Parties agree that the name and location of the place of business (hereinafter referred to as “the Entity”) is as follows: _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
ENTITY ACTIVITY
The Parties agree that the Entity’s business and activity will be as follows: _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
REGISTERED AGENT
The Parties agree that the information of the registered Agent is as follows:
Name ________________________________
Address _______________________________
State__________________________________
Country________________________________
Postal Code______________________________
DISSOLUTION AND TERMINATION
The Parties agree that the Entity may be subject to dissolution upon a majority vote of the membership interests in the Entity.
The Parties further agree that in case of the liquidation of assets, the Parties will liquidate the assets in accordance with the market value thereof.
The Parties agree to proceed in liquidating the assets as follows: _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
RECORDS/AUDITS/REPORTS
The Parties agree that the Entity will, at all times, keep complete accounting and other financial records in accordance with this Agreement.
INTELLECTUAL PROPERTY
The Parties hereby agree that the Client will retain his/her present and future rights, title as well as the interest to all intellectual property (hereinafter referred to as “Intellectual Property”) that is created and/or discovered during the term of their employment.
Intellectual Property includes, but is not limited to, trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets, algorithms, codes, inventions, processes, software, formulas, ideas, concepts, and developments.
TERMINATION
This Agreement may be terminated in case the following occurs:
Immediately in case one of the Parties breaches this Agreement.
By providing a written notice to the other party at least ________________ days prior to the intended termination.
CONFIDENTIALITY
During the Term and for a period of ________________ years thereafter, the Parties agree to maintain in confidence all information disclosed that is identified as, or acknowledged to be, confidential at the time of disclosure (the “Confidential Information”), and shall not use, disclose or grant the use of the Confidential Information.
AMENDMENTS
The Parties agree that any amendments made to this Agreement must be in writing where they must be signed by both Parties to this Agreement.
As such, any amendments made by the Parties will be applied to this Agreement.
SEVERABILITY
In an event where a provision of this Agreement is found to be void and/or unenforceable by a court of competent jurisdiction, then the provisions remaining will continue to be enforced.
DISPUTE RESOLUTION
Any dispute and/or difference arising out of or related to this Agreement will be submitted to ________________ (Arbitration/mediation/negotiation) according to, and subject to the laws of ________________.
GOVERNING LAW
This Agreement will be governed by and construed according to the laws of ________________.
ENTIRE AGREEMENT
This Agreement is complete and with respect to the subject matter herein, supersedes all and any prior agreements, understandings, and conditions, expressed or implied, written or oral, of any nature with respect to the subject matter herein.
The expressed terms control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms herein.
SIGNATURE AND DATE
The Parties hereby agree to the terms and conditions set forth in this Agreement and such is demonstrated throughout their signatures below:
COMPANY _______________________________ | MEMBER ______________________________ |
DATE _______________________________ | DATE _______________________________ |
Download Our Free Operating Agreement Template Today
Don’t waste any more time trying to craft the perfect operating agreement. Our free operating agreement template is ready and ready to download in one quick, convenient click—no more complicated documents for you or your partners to fill out. Just download, customize, and off you go!
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