An Illinois LLC Operating Agreement is a contract or legal document which acts as a guide for the member(s) of a company, whether big or small.
This contract allows the member(s) to prepare detailed information concerning their company’s policies and procedures to guarantee a uniform and smooth flow of business operations across all the involved parties.
Whether an individual member or multiple members, an Illinois LLC operating agreement is meant to offer these member(s) guidance in their daily business activities. The Illinois state expects all businesses to prepare and sign this contract.
Still, it does not require its filing to the Secretary of State. As a result, businesses in the state of Illinois who have entered into this agreement can separate and protect their assets from their business assets.
Also, these businesses can receive tax benefits that only LLCs with the operating agreement in Illinois can access, based on the current state laws. With an operating agreement, company members are able to write down all their decisions and affairs; hence have a proper business outline.
This can include the roles of the members, rights, and responsibilities of members and managers, management structure, membership regulations and how to proceed when dissolving the company.
Note: The state of Illinois requires the preparation and signing of the Illinois LLS Operating agreement based on the Limited Liability Company Act (805 ILCS 180), Operating Agreement Laws (805 ILCS 180/15-1), and State Definition (805 ILCS 180/1-5) found in their Illinois Compiled Statutes database.
Types of Illinois Operating Agreement
There can either be a member or multiple members who enter into this legally binding contract, which means that there are two types of Illinois LLC operating agreements which are as follows:
Single-member LLC operating agreement
This contract is used by one member or a single business owner to outline their day-to-day business activities, company practices, company procedures, and policies.
Download: Microsoft Word (.docx)
Multi-member LLC operating agreement
This contract is used by companies with more than one member as the owner. It is used as a guide by these multiple owners as it contains the company’s operations and policies for better and uniform business management.
Download: Microsoft Word (.docx)
Reasons to Create Operating Agreement
Whether it is a single business owner or multi-member company ownership, it is essential to prepare this operating agreement.
Here are some reasons why member(s) of a company in Illinois should create the Illinois LLC operating agreement.
With an LLC operating agreement, you can prove that your business is long-term, valid, and legitimate to other interested parties. With such legitimacy, you can deal with the parties you want to involve in your business or company correctly and without trouble.
For instance, as a business owner in Illinois state, you must prove you are legit if you want to open a bank account. That means having this contract will help you develop a good and effective relationship with the bank. Also, people will only invest in your company if they know that you do a legitimate operation, requiring an LLC operating agreement.
The LLC operating agreement will help protect you from the limited liability status. This means that you will not be personally responsible for any issues that may arise within your business or company. In addition, any legal issues or business debts will also not affect your assets.
In the case of multi-member ownership of a business, preparing this LLC operating agreement will prevent disputes and disagreements between the partners. All partners will manage and operate the business based on the procedures and policies stipulated in the contract.
With such uniformity, there is bound to be reduced disputes since all partners have a formal agreement to observe and uphold. Also, a written agreement is better than an oral one since it provides a reference in case of questions or disputes that arises among the partners.
Protects from default state laws
In the state of Illinois, it is essential to have an LLC operating agreement.
This is because it will protect you from any interference from the default state laws. For example, the state laws might fail to consider the separation of your personal and business assets guaranteed by the operating agreement. Also, without this contract, you will not have any tax benefits.
That means that the state of Illinois will handle any conflicts that arise in the business based on the state laws, which will not favor any specifics of the company as the agreement would.
Advantages of LL flexibility
The final reason that should prompt you to create and use the Illinois LLC operating agreement if in this state is the advantages of signing the agreement. Since LLC is flexible, having this operating agreement will allow you to enjoy its benefits fully. This includes tax benefits, having specific member rights and responsibilities, highlighting the privileges of every partner, etc.
Information to be Included
Member(s) preparing this operating agreement need to know the information required in the agreement. The agreement will become a legally binding contract if it contains the correct information and is signed.
Here are the details that must be included in the Illinois operating agreement:
This agreement is legally binding and must, therefore, contain correct information. You must include your company’s name as indicated in your Illinois Articles of Organization. In addition, the company’s name as indicated in this document must be well-written in the agreement. This will ensure that investors and other parties can legally recognize your company or business.
Rights and responsibilities
The agreement should highlight and specify the members’ ownership rights, responsibilities, and powers. The members should have their investments mentioned alongside the percentage of ownership they have regarding the company. The agreement should also specify if the company is to be managed by hired managers or by the company members.
Whether it is multi-member ownership or a sole proprietor, this information is essential and must be included in the agreement. The decision-making process should also be clearly indicated. It could either be based on a majority or unanimous vote.
This means that the voting rights must be specified in the document. For the voting rules, there should be instructions on which decisions are made by a vote, manager, or member-manager to avoid any confusion.
The company’s percentage of ownership will help determine how the profits will be distributed among the members. If the members wish to use another form of calculation to divide the profits, this should be well indicated in the agreement.
The operating agreement should also have details about when the profit distribution will happen. There are LLCs in Illinois that distribute their profits once every year while others choose to do it on a quarterly or semi-annual basis.
Buyout and Buy-Sell rules
This section is essential as the information here will help determine how to manage new members and leave existing members. The process might be conducted through a vote or any other preferred style. The crucial part is to include this information to determine the percentage given to a leaving member and how a new member will join the company.
Also, the agreement will have guidelines on how the interest made in the business by the member who is leaving can be given to another person. This will help other members to update their personal assets according to the decisions made.
It is also essential to indicate the situations that might trigger the dissolution of the business or cause all members to leave. There should be instructions in writing on how to handle this process.
Although not required, it may be essential to include meetings in the agreement so that members of the company meet and discuss different business issues. The requirements that will determine the preparation of a meeting should also be well mentioned in this section.
This agreement helps member(s) establish which records relating to the company will be kept and for how long. This may include annual reports, tax information, and other records necessary for business operations. You can easily access any document you require if you have the LLC operating agreement.
Like most contracts, this operating agreement should also use boilerplate language to ensure that all the information is valid. This way, there will be no ambiguous information; hence the contract will remain legal and direct the company’s operations.
Also, it is important to add the severability provision clause. This clause will help to protect the agreement from being completely dissolved in case a section of the contract is found to be invalid or illegal.
Operating Agreement Template
Company owners in Illinois should create and use the Illinois LLC operating agreement. This legally binding contract ensures the member(s) of a company with detailed information of the company’s procedures and policies. In addition, the agreement protects the members’ personal assets from their business assets in case of any legal actions.
With this contract, the members will not have to deal with legal issues personally. However, it is necessary to prepare this operating agreement as a company owner in Illinois. You can download the following easily accessible and free Illinois LLC operating agreement templates to prepare your contract:
How to Form Operating Agreement?
Forming an Illinois LLC operating agreement can be an as easy process if you use a template. Templates ensure that all the information included in the agreement is present in the contract before signing. For better understanding, easily downloadable templates are given here to get yourself well-prepared for LLC in Illinois. We have templates for both multi-member and single-member contracts.
Company member(s) or owners in Illinois can form the Illinois LLC operating agreement by following the steps below:
Find a registered agent
The first step is to find a registered agent who legally resides in Illinois and has permission to partake in business activities. This agent will be responsible for receiving government information and notifications on behalf of the company.
The next step will be to gather all documents required for registration. Then, the agent may choose either the domestic LLC or foreign LLC, depending on the nature of the agreement that is being prepared.
With the documents in place, the agent should observe these filing requirements to complete the filing process. They should print all paper applications in two copies. Also, for the foreign LLC, they should have a Certificate of Existence filed within sixty days, after filing the foreign LLC application. This certificate has to be validated by an initial jurisdiction officer.
With the documents all gathered, the agent should look for the filing fee required. For filing by mail, the fee will be $500, while filing online will be $600. When using mail, the agent must attach evidence of the payment alongside the document and send the package to the following address:
Department of Business Services, Limited Liability Division, 501 S. Second St., Rm. 351, Springfield, IL 62756
Online filing requires the agent to pay the fee using their credit card before the process is completed.
The next step is to establish whether the operating agreement required is a single-member or a multi-member Illinois LLC operating agreement. This document should highlight all the rules, regulations, and provisions of the company.
The last step is to include the EIN (Employer Identification Number) when creating the operating agreement. IRS uses this nine-digit number for tax issues related to businesses. The EIN can easily be obtained and free online or through the mail by using the SS-4 form. The EIN will help to provide tax information about the company.
Frequently Asked Questions
The Limited Liability Company Act (805 ILCS 180) states that companies may adopt this operating agreement to protect their businesses and receive tax benefits. However, it is not a requirement to have this agreement in the State of Illinois.
The operating agreement is not the same as the Article of Organization. While the operating agreement is a legally binding contract signed by partners within a company to highlight the business operations, the Article of the Organization is a document submitted to the Illinois Secretary of State when forming the LLC.
In the State of Illinois, the operating agreement is not filed with the state. However, a copy of the signed document is stored alongside the company’s records, and each LLC member must have a copy.