Kansas LLC Operating Agreement is a legal business document that defines the company ownership, management structure, and standard operating procedures of an LLC.
It’s an internal document that brings out more profound clarity about your LLC and protects you from financial risks. In the state of Kansas, it’s not a mandatory requirement for an LLC to have an operating agreement.
However, it’s highly recommended to have a signed and notarized Kansas operating agreement in place whether you are in a single-member LLC or a multi-member.
In Kansas, there are substantive supporting laws about LLCs operating agreement as summarized below:
Limited Liability Company Act is established by Chapter 17, Article 76
Operating Agreement Laws – § 76-7672
State Definition – § 17-7663(k)
In this guide, we shall look at types of Kansas LLCs, how to form a Kansas operating agreement and the benefits that your company will enjoy by having an active operating agreement in place.
What is Single-member LLC Form?
The Kansas single-member operating agreement form is an official document used by a sole proprietor who wishes to create an LLC in Kansas. This document is used to define a single-member limited company policy, day-to-day operating procedures, and employees’ duties and relationships.
Although you are not required to file a single-member LLC operating agreement with the state of Kansas, having one in your company records will give your company legal credibility in case of future litigations. As a limited liability entity, it helps protect the founding member assets from any repossession in case of any business failures or legal actions against the LLC.
Your attorney will offer any technical help you would require helping you fill and sign the form before it can be notarized. Company owners with an active operating agreement in place also enjoy appropriate tax benefits.
Why Use LLC Operating Agreement?
There are many benefits that business owners in Kansas can enjoy by having an official Kansas LLC operating agreement document in place. As an internal business document, it drives all the daily operations of an LLC. Some of the benefits of having an LLC operating agreement include:
Protect personal assets
Having a Kansas LLC operating agreement gives members protection of their financial assets if the business faced litigation or collapse. LLC member(s) are viewed as separate entities from the business itself.
Avoid state interference
If a Kansas LLC doesn’t have an operating agreement in place, it can never be recognized by the state or court as a limited liability. However, if the LLC gets sued by any chance, the court will treat both the founding members and the business as one entity, and a judgment will be made about the already existing applicable state laws.
Credibility to the business
To build credibility, it must demonstrate proper bookkeeping as proof of formality. Maintaining a signed operating agreement in your business file is very important as it will enable you to open a business bank account, get loans, or even attract potential investors.
Binding verbal agreement
An operating agreement helps put all the oral resolutions made by members of an LLC into writing. Having a written and duly signed binding Kansas LLC operating agreement ensures less conflict and better clarity of functions and profit margins.
Creating an operating agreement gives members of a Kansas LLC a unique opportunity to decide how the day-to-day operations will be done. As a result, there is more flexibility when deciding on the amount to contribute, the management structure, meetings, how to share profits, and many other critical business decisions that need to be made.
When everything is put into writing in the form of a Kansas LLC operating agreement, and each member or employee is given a copy, there will be minimal conflict. Clarity of duties, members’ addition, resignation, dissolution, separation of powers make every member of the Kansas LLC know their specific roles, thus avoiding unnecessary misunderstandings.
A Kansas LLC with an official operating agreement document will enjoy some tax benefits that the state would otherwise not grant if the company doesn’t have such an important document.
Preserve LL status
Getting a Kansas operating agreement will help your business avoid falling on the Kansas default laws ladder. It helps create a legal separation between the member’s financial assets and the business liabilities. The courts in Kansas will also recognize your business as a limited liability entity.
Information to be Included
When drafting a standard LLC operating agreement, specific crucial details must feature in a Kansas LLC operating agreement form. They include:
The operating agreement must have a section that outlines your company’s name. The name should be similar to what you entered in your Articles of Organization when you registered the business entity with the Secretary of State. An LLC legal name in Kansas State must include the words (Limited Liability Company).
In this section, an operating agreement outlines the real owners of the LLC, popularly known as members. All members must be registered using their full official name and stipulate their ownership shares. The percentage of ownership for each member will also help set clarity when it comes to profit sharing.
This section defines who does what and when. Different LLCs adopt different management structures depending on the availability, experience, and scope of work. In most cases, the management structure of Kansas LLCs can be grouped as either member-managed or manager-managed. If you are operating a single-member LLC, the management structure will not be as detailed as a multi-member LLC.
Duties of members
An operating agreement stipulates the duties and responsibilities of members, managers, employees, and other supporting staff in running the operations of an LLC. Every party is given a copy of the Kansas LLC operating agreement to understand and make reference to what their duties are and what they can do and cannot do.
Voting rights and responsibilities
Giving members a right to vote during major decision-making processes is a common phenomenon in most Kansas LLCs. For example, an operating agreement will outline who can vote and on what matters. It also stipulates the voting cycle, preferred location, and voting powers. When members are given the right to vote, they play a critical role in shaping the future of the LLC.
In this section, an LLC operating agreement will specify the amount of cash that each member has contributed to kick-start the business entity. It also provides guidelines on how additional funds will be contributed to the future and the specific projects that the money will fund.
The distributions segment will outline how profits generated or losses incurred in running the business will be shared among members. It helps to reduce conflict, especially in multi-member LLCs. Various distribution formulas are deliberated, and the best option that is fair to all members is adopted. For example, most of the LLCs in Kansas split distributions based on membership share.
To ensure the business is living to its primary objectives, LLCs should hold regular meetings. This section of the LLC operating agreement outlines how members, managers, and employees will be holding their regular meetings to check on the progress of the business. In addition, there can be mandatory meetings and emergency meetings.
It should clearly outline who should attend, venue, frequency, agendas, and the minimum quorum required for each meeting to start.
Buyout and buy-sell rules
As the business grows, there will come a time when different members express interest to exit the LLC, and they will opt to transfer their shares to another person. This process of transfer of interest to another person is known as buyout or buy-sell.
Therefore, the operating agreement should have a “right of first refusal” clause to enable active members of LLC to buy out the shares of the member who is leaving before giving that opportunity to a new person.
This section of an operating agreement should feature a detailed succession planning that stipulates what will happen if a member of the LLC dies or retires. Members should provide a list of their preferred heirs who will inherit their LLC membership shares in case of death.
For a single-member Kansas LLC, the operating agreement should have a clause on “transfer on death” to ensure that the company will continue running without any interruptions in case the founding member dies.
What will happen if all members decide to discontinue doing the operations after doing business for several years? That’s where a dissolution clause comes in. Your operating agreement should clearly outline a hypothetical process of how you will officially dissolve the LLC if you reach such a point.
An operating agreement is a living document, and it should be updated regularly to align itself with the internal changes of the LLC management structure and operations. As a legally binding internal document, there should be a clear guideline on when and how it should be amended.
In addition, there should be a guideline on how amendment discussions should be done, who should vote, and who should not. Finally, all members should sign the updated LLC operating agreement copy as a sign of acceptance.
An LLC operating agreement with a severability clause ensures the entire document is never rendered invalid or useless if there is a small error in any section of the document. In addition, this safeguard ensures that the other clauses of the LLC operating agreement remain officially valid and are enforceable.
How to File for LLC Status?
Here is a step-by-step process of how to file for an LLC status in Kansas.
Choose a business name
The first step of filing for an LLC in Kansas is to conduct a business entity name search to ensure the name is unique. Business name records are kept by the office of the Secretary of State.
Look for a registered agent
Once you have preserved your preferred unique Kansas LLC name, the next step is to appoint a registered agent. The registered agent can either be an individual or a business consulting entity that carries out its operations in the state of Kansas.
The registered agent will act as a link between the LLC and the Secretary of State. In addition, the agent will serve the LLC with any official notices, including the annual reports.
Gather the document required and submit them to the Secretary of State. You can send the documents either online or by mail. If the LLC you register will be based in Kansas, use the domestic option. If you are registering a foreign-based LLC, you will be required to file a pre-existing LLC formed outside the state of Kansas. Filing registration documents can be done either online or by mailing an Adobe PDF.
You will be required to pay a filing fee. For both domestic and foreign-based LLCs, you will pay a total of $165. However, if you are filing a domestic LLC online, you will be charged $160 only. The billing system supports different payment options.
If you would prefer to file a paper form, you will be required to attach the check and send all the required documents to the Secretary of State via this address: Memorial Hall, 1st Floor, 120 SW 10th Avenue, Topeka, KS 66612-1594.
LLC operating agreement
After a successful filing of the formation of an LLC, members should initiate creating an LLC operating agreement. It can either be a single-member LLC operating agreement or multi-member LLC operating agreement.
An operating agreement gives the business an LLC status and offers a clear separation of the business assets and the founding members. As an internal affairs document, it also provides precise details of ownership and management structures.
Obtaining the Employer Identification Number (EIN) from the Internal Revenue Service (IRS) will give your LLC powers to hire employees, apply for finances, or even acquire company credit cards. The EIN can be applied online or through the filing of Form SS-4.
Operating Agreement Template
When you start drafting your Kansas LLC operating agreement template, there are high chances that you will be tempted to check the Secretary of State in Kansas for a free template form.
We have created samples of free downloadable Kansas LLC operating agreement templates for single-member and multi-member LLCs.
Once the draft is ready, you can review it with other members to ensure everything is perfect. LLC members will have to sign the final document to be notarized to become a legally binding internal document. In case you need any assistance, it’s always good to consult a business attorney.
Implementation of Agreement
Once the final copy of your LLC operating agreement document is ready and dully signed, you only need to implement it to realize its full potential. The operating agreement will give precise details of all the LLC members, their ownership share, duties and responsibilities, and profit distributions.
The signed and notarized copy should be kept in the company’s files, and each member should have a copy of the operating agreement. Your business will use the operating agreement document to negotiate with investors, banks when seeking financing. It will also help in protecting members against liability and losses in case of legal action.
If there are changes in the ownership and management structure, members will have to update and sign a new operating agreement that reflects the changes made.
Frequently Asked Questions
It’s not a mandatory requirement by the state of Kansas but having one is essential to give your business the LLC status. In addition, it protects members in case of business liability.
The best time to create your operating agreement is before you file your Articles of Organization. However, there are no limitations, and you can create an operating agreement document for your business once the registration process is over.
Yes. There are many free templates that you can use to customize and write your LLC operating agreement. However, if you are unsure of some details or format, you can consult a Kansas business lawyer for a professional review.