Limited Liability Company Operating Agreement
This Operating Agreement (the "Agreement") of [LLC name (exactly as filed)] (the "Company"), a limited liability company formed under the laws of the State of [State of formation] by the filing of its articles or certificate of formation on [Date the articles or certificate of formation were filed], is made effective as of [Effective date of this agreement] by and among the Company and its members: [Member 1 full name], of [Member 1 address] ("Member 1"), and [Member 2 full name (or “None”)], of [Member 2 address] ("Member 2"). The Company is: [Single-member or multi-member]. If the Company is single-member, every reference to Member 2 or to other members in this Agreement does not apply, Member 1 is the sole member, and any vote or consent of the members means the decision of Member 1 alone. Each person who signs this Agreement as a member, and each person later admitted under it, is a "Member".
1. Formation and Purpose
The Members confirm the formation of the Company under the limited liability company act of the State of [State of formation] (the "Act") and adopt this Agreement as its operating agreement. The Company’s principal office is at [Principal office address], and its registered agent is [Registered agent name and address]; either may be changed by the Members. The purpose of the Company is: [Business purpose], and any other lawful activity the Members approve. The Company continues until dissolved under Section 10. The Company shall obtain a federal employer identification number, maintain its registration in good standing, and qualify to do business in any other state where its activities require.
2. Members and Capital Contributions
The Members, their initial capital contributions and their percentage interests are: Member 1, [Member 1 full name], contribution [Member 1 initial capital contribution], percentage interest [Member 1 percentage interest (%)] percent; and Member 2, [Member 2 full name (or “None”)], contribution [Member 2 initial capital contribution], percentage interest [Member 2 percentage interest (%)] percent. Each Member shall make its initial contribution within thirty (30) days after the Effective Date, in cash unless the Members agree in writing to a contribution of property or services and its agreed value. Percentage interests are adjusted only by written amendment to this Agreement.
No Member is required to make any additional capital contribution, and no Member may be assessed for one without its written consent. If the Members unanimously agree that additional capital is needed, each Member may contribute in proportion to its percentage interest; a Member that declines may have its percentage interest diluted proportionately as the contributing Members and the declining Member agree in writing. No Member is entitled to interest on, or the return of, its capital contribution except as provided in this Agreement, and no Member has priority over any other as to distributions or return of capital.
3. Management
The Company is: [Management]. If the Company is member-managed, the business of the Company is managed by the Members, each Member is an agent of the Company for the purpose of its ordinary business, and decisions are made by Members holding a majority of the percentage interests unless this Agreement requires unanimity. If the Company is manager-managed, the business of the Company is managed by [Manager (if manager-managed; otherwise “Not applicable”)] (the "Manager"), who has full authority to act for the Company in its ordinary business, serves until resignation, death, incapacity or removal by Members holding a majority of the percentage interests, and may be replaced by the same vote; Members who are not the Manager have no authority to bind the Company.
Regardless of the form of management, the following actions require the written approval of Members holding at least a majority of the percentage interests: any single expenditure, contract or borrowing exceeding [Spending or borrowing above this amount needs member approval]; hiring or firing any employee whose annual compensation exceeds that amount; opening or closing a line of business; and entering into any transaction with a Member or a Member’s relative or affiliate. The following actions require the unanimous written approval of the Members: admitting a new Member; amending this Agreement or the articles; selling, leasing or encumbering all or substantially all of the Company’s assets; merging or converting the Company; changing its tax classification; filing for bankruptcy; and dissolving the Company. Members may act at a meeting, by telephone or video conference, or by written consent, including by email, signed or sent by the Members holding the required percentage interests.
4. Allocations and Distributions
Profits and losses of the Company for each fiscal year are allocated among the Members in proportion to their percentage interests, subject to any adjustment required by the Internal Revenue Code and the regulations under it. The Company shall maintain a capital account for each Member in accordance with Treasury Regulation §1.704-1(b), increased by contributions and allocated profits and decreased by distributions and allocated losses.
Within ninety (90) days after the end of each fiscal year, and quarterly if the Members so decide, the Company shall distribute to each Member cash sufficient to pay estimated federal and state income taxes on that Member’s allocable share of Company income at the highest combined marginal rate applicable to an individual resident in the state of the principal office, to the extent the Company has cash available after providing for its reasonable needs. All other distributions are made when and in the amounts approved by Members holding a majority of the percentage interests, in proportion to percentage interests. No distribution shall be made if, after giving it effect, the Company would be unable to pay its debts as they become due or its liabilities would exceed its assets, as provided in the Act.
5. Books, Records, Banking and Tax
The Company shall keep complete books and records at its principal office, including this Agreement and all amendments, the articles, a list of Members with their addresses, contributions and percentage interests, tax returns for the last six (6) years, and financial statements for the last three (3) years, and each Member may inspect and copy them on reasonable notice. The Company’s fiscal year ends on [Fiscal year end]. The Company’s funds shall be deposited in accounts in the Company’s name and shall not be commingled with any Member’s funds; the Members shall designate who may sign on the accounts. For federal income tax purposes the Company is classified as: [Federal tax classification]. If the Company has more than one Member and is taxed as a partnership, Member 1 is designated the partnership representative under Section 6223 of the Internal Revenue Code and shall keep the other Members informed of and consult with them on any tax proceeding. The Company shall deliver to each Member the tax information needed to prepare its return within ninety (90) days after the end of each fiscal year.
6. Limited Liability; Indemnification; Duties
No Member or Manager is personally liable for any debt, obligation or liability of the Company solely by reason of being a Member or Manager. The failure of the Company to observe formalities relating to the exercise of its powers or the management of its business is not a ground for imposing personal liability on any Member or Manager. The Company shall indemnify each Member and Manager against any loss, liability or expense, including reasonable attorney fees, incurred by reason of any act or omission performed or omitted in good faith on behalf of the Company and reasonably believed to be within the scope of authority conferred by this Agreement, except for fraud, willful misconduct, knowing violation of law, or a transaction from which the Member or Manager derived an improper personal benefit.
Each Member and Manager shall discharge its duties in good faith and with the care an ordinarily prudent person would exercise in like circumstances, shall not compete with the Company or usurp a Company opportunity without the written consent of the other Members, and shall account to the Company for any benefit derived from Company property or business without that consent. Subject to those limits, a Member may engage in other businesses and investments, and neither the Company nor any other Member has any right in them.
7. Transfers of Interests
No Member may sell, assign, pledge or otherwise transfer all or any part of its interest in the Company, voluntarily or by operation of law, without the prior written consent of all other Members, except as provided in this Section. A transfer in violation of this Section is void, and a transferee who is not admitted as a Member has only the right to receive the distributions to which the transferring Member would have been entitled and has no right to vote, to inspect records or to participate in management.
A Member who wishes to transfer its interest to a third party shall first give the Company and the other Members written notice of the proposed price and terms. The Company, and then the other Members in proportion to their percentage interests, have sixty (60) days to elect to purchase the entire interest on those terms. If neither elects, the Member may transfer the interest to the named third party on those terms within ninety (90) days, and the third party is admitted as a Member only on the written consent of the other Members and on signing a joinder to this Agreement.
On the death, adjudicated incapacity, bankruptcy or divorce of a Member, or on a Member’s withdrawal, the Company and then the other Members have the option, exercisable by written notice within one hundred twenty (120) days after learning of the event, to purchase the affected interest at its fair market value as agreed between the parties or, failing agreement within thirty (30) days, as determined by an independent appraiser chosen by the parties or, failing that, by two appraisers each chosen by one side who together choose a third whose determination controls. The purchase price is payable twenty percent (20%) at closing and the balance over thirty-six (36) months with interest at the prime rate, unless otherwise agreed. Until purchased, the affected interest is held by the Member’s estate, guardian, trustee or former spouse as a transferee with economic rights only. A Member may withdraw on ninety (90) days’ written notice to the other Members; a withdrawing Member is not entitled to any distribution on withdrawal except as provided by this purchase option or as the other Members agree. If the Company is single-member, on the death or incapacity of Member 1, the Member’s personal representative, guardian or the person designated in the Member’s will or trust may exercise the Member’s rights and may continue the Company or admit a successor Member.
8. Admission of New Members
A new Member may be admitted only with the unanimous written consent of the existing Members, on such contribution and percentage interest as the Members determine, and on the new Member signing a joinder agreeing to be bound by this Agreement. On admission, the percentage interests of the existing Members are adjusted as set out in the written consent, and this Agreement is amended accordingly.
9. Dissolution and Winding Up
The Company dissolves on the first of: the unanimous written consent of the Members; the sale of all or substantially all of its assets and the collection of the proceeds; the entry of a decree of judicial dissolution; or any event that makes it unlawful for the Company to continue. The death, incapacity, bankruptcy or withdrawal of a Member does not dissolve the Company, and the remaining Members, or the successor of a sole Member, may continue it. On dissolution, the Members or the Manager shall wind up the Company’s affairs, sell or distribute its assets, and apply the proceeds first to creditors, including Members who are creditors, then to any reserves reasonably needed for contingent liabilities, and then to the Members in accordance with their positive capital account balances after all allocations, with any remainder in proportion to percentage interests. The Members shall file a certificate of cancellation or dissolution with the state and a final tax return.
10. General
This Agreement is governed by the laws of the State of [State of formation], including the Act, and where this Agreement is silent the Act applies. It is the entire agreement of the Members about the Company and supersedes all prior agreements. It may be amended only by a writing signed by all Members. It binds and benefits the Members and their heirs, personal representatives, successors and permitted assigns. If any provision is held unenforceable, the remainder continues in effect. Any dispute among the Members concerning the Company shall first be submitted to mediation, and then may be brought in the courts of the State of [State of formation]. Notices shall be in writing and delivered to the addresses above or to the email addresses in the execution record. This Agreement may be signed electronically and in counterparts, each of which is an original and all of which together are one instrument, and the electronic execution record, timestamps and document fingerprints kept by the signing platform are conclusive evidence of its execution.
Signatures
Member 1 · Member 2