Alabama LLC Operating Agreement Templates | How to Register

An Alabama LLC Operating Agreement is a formal document that helps coordinate the internal affairs of your company by clearly outlining the ownership structure and the operating procedures.

Although you are not legally mandated to file the LLC operating agreement document with the State of Alabama, it gives your LLC company legal formality. As an internal affairs document, the Alabama LLC operating agreement defines the governing structure, daily operating procedures, and the responsibilities of each member.

Instead of relying on verbal agreements, an operating agreement document is created to act as a reference point to clarify issues that can bring conflicts among members. It also gives Alabama businesses an LLC status thus, protecting the founding members from company liabilities and financial woes.

Alabama LLC operating agreement is fully supported by the following state laws:

Alabama Limited Liability Company Law of 2014: Title 10A, Chapter 5A

Operating Agreement Laws: § 10A-5A-1.08

State Definition: § 10A-5A-1.02(k)

Once the operating agreement is drafted, a signed copy is well-maintained as part of the LLC Company records, and each member is given a copy so that they can abide by it.

There are different types of Alabama LLC operating agreement templates that are drafted depending on the number of members forming the company. They can be categorized into three groups as follows:

Benefits of the Agreement

Regardless of the type of operating agreement document you create; they all serve the same purpose. The following are the benefits of creating an Alabama LLC operating agreement for your new business:

Preserve LLC status

If you are creating a single-member Alabama LLC, drafting an operating agreement will add legal credibility to your company. In case of any litigations, court officials will uphold your limited liability status.

Creating an operating agreement for your Alabama LLC helps in creating a formal framework. According to Alabama Business Code Section <10A-5A-1.08, the state encourages LLCs to have an active operating agreement in place.

Resolves conflicts

An operating agreement guides how management protocols and internal affairs flow. It helps avoid and resolve conflicts more easily, especially for those creating a multi-member LLC because every member is given clear roles and responsibilities. A good operating agreement will include straightforward processes, rules, and any other requirements that outline members’ rights and limitations.

Company’s protection

If you start an LLC in Alabama and you don’t have an operating agreement in place, you will be at a disadvantage in case you face litigation. The court will review the issue at hand using the existing standard state rules which sometimes may go against the preferred members’ assets protection.

Business financial accounts

When your company seeks a financing agreement or initiates the process of opening a bank account, one of the documents that the bank will ask for is a copy of the Alabama LLC operating agreement. It helps the lender to ascertain that the members have been granted the power to operate financial accounts.

If you also get potential investors, they will also require a copy of the operating agreement before they can agree to invest in your business entity.

Following points are needed to be included:

Flexible LLC

Alabama LLC operating agreement offers flexibility in the management of the business entity. As an internal affairs document, it contains a well-laid out management structure that defines the powers and responsibilities of each member. LLCs in Alabama with operating agreements run smoothly since there is a framework that defines the roles and responsibilities of each member.

There are certain elements that should be included in any standard Alabama LLC operating element. They include:

LLC name

A complete Alabama LLC operating agreement must clearly state the official name of your company plus any trademarks related to your company. Your official company name should be similar to what appears in your Certificate of Formation that you have filed with the Alabama Secretary of State.

Ownership details

You provide details of how the LLC is owned and the agreed management structure. Whether it’s a sole-member, members-managed, or manager-managed model.

Rights and responsibilities

If the LLC has more than one member, it’s important to specify everyone’s roles and responsibilities. It would be best to have a list of all members and a record of their initial financial contributions. Clear separation of powers and roles in your Alabama LLC will help minimize disputes and increase productivity.

You should also have a clear policy on how decisions are made in your LLC. There should be a clear distinction between the decisions that can be made by managers and those that will require members to vote. You should also decide if there is any member (s) who have been granted permission to speak on behalf of the LLC and make decisions when interacting with other parties without prior approval from the other members.

Member voting rules

It provides a framework of how elections or resolutions can be passed in your Alabama LLC. It will outline which members have the powers to vote, the voting procedures, the weight of each member’s vote, and how to handle split votes. In some LLCs, members who have contributed more capital are entitled to extra votes.

Profit distributions

This section clearly stipulates how profits realized by your Alabama LLC will be distributed among members if it has more than one member. Distribution of profits realized can be done according to the member’s initial contributions, evenly or according to the percentage of ownership.

The specific time for making distributions should be clearly stated plus the person or office in charge of making distributions.

Member change process

An Alabama LLC operating agreement should also have a framework that stipulates how new members can be added. It should equally stipulate how existing members can be removed and under what circumstances. These guidelines should also explain the financial implications of taking such steps and the roles and responsibilities of the new members.

Also, a clear member exit strategy should be put in place to stipulate how members can leave the company either willingly, during buyout or when members agree to mutually dissolve their Alabama LLC and the financial implications.

Record-keeping

It’s not a requirement for LLCs in Alabama to file their operating agreement with the state, having a signed copy in your company records is very paramount. Record keeping protects your LLC by making it a legal business entity.

Each member is also given a copy of the operating agreement to use as a reference when carrying out their day-to-day operations. If there was a new update or amendment proposed during a meeting with members, a copy of the document keeps everyone updated at all times.

Meeting requirements

Defining the structure of all types of meetings that your Alabama LLC will be engaging in help create order and transparency. The operating agreement will not only outline the type of meetings to be held but also the convener, topics to be discussed, and if possible venue and time.

Human resources topics

This section provides detailed human resource regulations and policies that will outline how employees and members of your Alabama LLC should conduct themselves. You can start by drafting a company’s code of conduct, payroll policies, off days, career development, and payout rules among others.

Rules and regulations

Your Alabama LLC operating agreement must also feature clear operational rules and regulations. Having standard operating procedures ensures that both the employees and members know the framework in which they are expected to perform their duties.

Severability provision

This is a section that protects your entire Alabama LLC operating agreement from becoming invalid in case there is an error in one or a few sections. The severability clause ensures that your LLC operating agreement can’t be rendered worthless just because there is a small error.

We have developed a free downloadable Alabama LLC operating agreement template that you can customize to fit the needs of your company. Please note that this operating agreement template should be used as a reference only and it’s important to have it reviewed by your business attorney before you can use it.

Other related terms that you should know about are:

Alabama promissory note templates

These are documents that are used to verify that someone was given a loan and there is a repayment plan in place for a particular period of time. Parties involved share their contact information and they negotiate the amount of loan, value for each payment, repayment period, and interest rates. In most cases, the interest rates range from 8% for a written contract and 6% for verbal agreements.

Types of Alabama promissory notes

There are two types of Alabama promissory notes.

Secured promissory note: It permits the lender to hold something of value if the borrower fails to repay the loan.

Unsecured promissory note: This is where the lender issues a loan to a borrower without any collateral. It usually works with persons with high credit score ratings or close friends.

Alabama promissory notes associated laws include:

Interest and Usury Laws: Title 8, Chapter 8

Usury Rates: ($8-8-1); 6% for non-written contract and 8% for the other types

How to Form an LLC Operating Agreement?

The first step of creating an LLC in Alabama is to carry out a name search. You should conduct your search with the Secretary of State’s Business Name Search. If your preferred name is also already taken, you will have to look for another one since the state can’t register duplicate names.

Reserve the name

After the name search, you need to reserve the unique name that your Alabama LLC will be operating under. A name reservation can be done by either online application for $28 or through PDF application whether domestic or foreign to

P.O BOX 5616, Montgomery, AL 36103. For PDF applications, you will pay $10 plus an additional $25 to speed up the process.

Application for registration

When you are done with the company name reservation, the next step is to apply for registration. You can register two types of LLCs. If you want to create a domestic LLC, you will fill out the Certificate of Formation Form. If you are creating a foreign LLC, you will fill application for registration.

Fee

You will be required to pay a filing fee. For domestic LLCs, you will pay $100 and $150 for foreign-based Alabama LLCs. Depending on the probate County where you are domiciled, there can be other additional fees.  If you want a speedy process, you can pay an extra $100.

Make copies and mail the application

If you choose to make a PDF application, you will be required to make two copies then attach the filling fees. If you are creating a domestic LLC, the Certificate of Formation should be submitted to the Judge of Probate’s Office in the County where the LLC is based.

For Foreign-based Alabama LLCs, the application for registration should be sent to P.O BOX 5616, Montgomery, AL 36103.

Operating agreement

Although you are not required to file an LLC operating agreement with the State of Alabama, you are highly encouraged to always have a copy as it gives your LLC legal credibility and minimizes conflicts.

Once you have drafted the final copy of your LLC operating agreement, make sure it’s reviewed by a lawyer so that it can be notarized. Give a copy of the final document to every member and employee of your company.

EIN

All business entities are required to have an Employment Identification Number. The EIN is provided by the Internal Revenue Service. One can manually fill out Form SS-4 or make an online application through their official website. It helps companies open a bank account, hire employees, and even apply for a credit card. Application for EIN is free of charge and you can have it in less than 20 minutes.