An LLC Operating Agreement in Louisiana is a form of legal paperwork that sole owners or managers of a multi-member company use to detail the operating and administrative practices, policies, daily activities of a company.
The Operating Agreement covers a lot of rules that guide the management of an LLC. The rules included in an operating agreement may range from procedures for the induction of members, partnerships, mergers and acquisitions, and voting on major decisions by members.
A vast majority of the laws governing businesses in Louisiana are spelled out in Title 12. Corporations and Associations of Louisiana Revised Statutes. Quite notable is that these laws make room for LLC operating agreements.
An LLC operating agreement forms part of a long list of legal and regulatory documents when establishing a limited liability company. An operating agreement is defined under the Louisiana Revised Statutes 12:1301(16).
Founders and administrators of enterprises in Louisiana use operating agreements to stipulate the operating technique, leadership structure, internal policies, ownership, and duties of the members of an LLC. In some business cases, the operating agreement is otherwise called a membership agreement.
Although there is no express legal provision that makes it compulsory for LLCs to have an operating agreement, it is helpful for clarity of business expectations and credibility. The ground rules regulating the form and use of operating agreements in Louisiana are codified under the operating agreement Laws in the Revised Statutes RS 12:1319.
Types of Operating Agreement
The classification of operating agreements in Louisiana largely depends on the membership form of the LLC. That said, there are two major types of LLC operating agreements outlined below:
Louisiana Single Member LLC Operating Agreement
Single-Member LLC Operating Agreement: A single-member agreement is adopted only for use by sole proprietorship business types.
Download: Microsoft Word (.docx)
Why an Operating Agreement?
Many business owners tend to ignore the importance of an operating agreement for LLCs because it is not an obligatory filing at the Office of the Secretary of State. Besides, the requirement for an LLC does not appear on the official schedule for business incorporation.
However, having one can prove highly beneficial. Here are practical reasons that show the importance of LLC operating agreements:
The state of Louisiana Business Statutes in Section 12:1301(16) recommends that business owners adopt an operating agreement for their LLC. In addition, the United States Small Business Administration considers that LLCs treat an operating agreement as a critical document in their incorporation.
Business partners, financing institutions, and banks often request an operating agreement before rendering business services to an LLC. They believe that an operating agreement increases the credibility of a business.
With an LLC operating agreement, companies can make the most of their flexibility to modify their structures, policies, and responsibilities to suit their particular operations. The operating agreement also helps stipulate procedures for buyouts, fiscal obligations of the LLC and its members, the administrative structure of the company, and the different responsibilities of members or managers.
Where the duties and rights of members of an LLC are set out in an agreement, it prevents conflicts in the company’s operation.
Protect LLC status
An operating agreement further specifies the distinction between individuals and the enterprise under the law. That way, personal assets are better protected against losses.
Binding of verbal agreements
Oral agreements can be forgotten easily or may vary when recounted by different people. In cases like this, the court may find it hard to enforce whatever oral agreement LLC members had. However, LLC operating agreements are written and help prevent potential disagreements on the arrangements made by members.
They are also recognizable in courts, thereby giving a more binding effect to oral agreements. Due to the nature of written agreements, it is essential that you include all possible details in your operating agreement. Once all members sign the agreement, every single part of it becomes immediately enforceable by law.
In the absence of an operating agreement, the general Louisianan laws will apply, which may deny unique benefits you would have enjoyed under an agreement.
As a case in point, Louisiana LLC laws may allow majority members to sell a large chunk of the business without the consent of a dissenting member. However, having an operating agreement ensures all members can have reasonable control of what happens.
Information to be Included
In Louisiana, an LLC operating agreement has specific fundamental elements that must form a part of the agreement. Here are some of the clauses and provisions that comprise an operating agreement:
An LLC operating agreement must contain the correct name of the company. The name on the agreement should be the same as on the Articles of Organization. Also, the Naming Guidelines of Louisiana prevent you from including “doing business as” names.
The full legal names of all respective owners of the LLC must be in the operating agreement. There is no strict rule on denoting ownership percentages in the agreement, but it is helpful to include it. Remarkably, you should create a distinct section of the agreement for this provision.
The type of management structure such as manager-managed or member-managed should be a part of every operating agreement. A manager-managed structure involves an exceptional manager administering the company’s operations. On the other hand, a member-managed structure has all members involved in supervision and control.
Duties of members
Your operating agreement under Louisiana laws should contain comprehensive clauses on the responsibilities of members and managers. The duties of members and managers depend on the type of leadership. Therefore, it is important to state when a manager requires consultation with members and when it is unnecessary in a manager-managed leadership form.
Also, regardless of whether members are active in the administration of the company or not, this section should stipulate rules on their general participation in meetings or other cases where their input is necessary.
Voting rights and responsibilities
An LLC operating agreement considers potential events of voting on pivotal business decisions. This clause dictates who can vote and the weight attached to the votes of different members. It also sets out whether votes should be based on a simple majority or be unanimous.
Operating agreements also set out the capital contributions or investments of members in the LLC. Therefore, this section can dictate types of capital contributions and how they affect the percentage of ownership. There may also be provisions as to how the LLC can raise extra capital in the future.
Distributions are clauses relating to how profits are shared among members of the LLC. Generally, LLC members may decide to share profits equally among members or share profits proportionally, depending on each member’s ownership percentage.
LLC agreements ought to stipulate the distribution formula of returns on capital. This clause helps determine what the formula should be and how it should be applied depending on ownership.
Every operating agreement should prescribe the frequency and procedure of important meetings. Besides, matters relating to voting, annual reviews of operations, and merger decisions will come up at meetings.
Therefore, issues relating to general decision-making during meetings should also be regulated in this section. With this provision in place, members will understand their responsibility to engage in the company’s activities.
Buyout and buy-sell rules
A valid operating agreement contains provisions guiding the entry and exit of members. For example, your agreement should include the procedure for initiating new members. Also, the rule on how much ownership percentage a new member should buy from a leaving member ought to be precise.
The possible death of a member should be considered. Therefore, operating agreements contain whether ownership percentages should be inherited by family or reverted to the company. In addition, the agreement should include the assumption of leadership in case of incapacity or emergency.
This clause relates to what the procedure members can undertake if the company is to cease. Provisions under this section may comprise delineation of duties and sharing of taxes or debts. It can also include the discharge of final managerial responsibilities aimed at concluding operations.
Since business is never stationary, plans and policies may change. Thus, your operating agreement should make room for how changes to the original document can take place. Once inserted, members must comply with rules concerning modification before adding or changing clauses in the agreement.
The severability provision states how the sections of the operating agreement are independent of one another. So, no error in one part of the agreement can make the others void.
Operating Agreement Template
If you need help drafting your LLC operating agreement, we are here to make your work easier. First, find an editable template of an LLC operating agreement that you can download for use below. We advise that your attorney reviews the template.
How to Form an Operating Agreement?
Before filing an operating agreement, conduct a business name search to make sure no other enterprise is already conducting business under your proposed business name. Afterward, you can proceed with the following procedures.
Find a registered agent
The first step is to nominate an agent. The agent serves as a contact person in case of a suit or official communication with the government. An agent could be an adult resident in Louisiana or a registered company in the state.
This step involves selecting whether the entity is a new domestic LLC or a pre-existing foreign LLC formed outside Louisiana.
File your application
You must pay $100 to file a Domestic LLC and $150 for a Foreign LLC. Online applications include an extra fee of $5.
Submit the application
Online applications are automatically redirected to the office of the Secretary of State. Adobe PDF files are to be sent to P. O. Box 94125, Baton Rouge, LA 70804-9125. In addition, foreign LLCs must attach a Certificate of Good Standing, dated within 90 days of the application, from the regulatory body in the original state.
The next step is to create your LLC operating agreement, setting out the privileges and responsibilities of members. This step is recommended when the LLC is already filed at the office of the Secretary of State.
Businesses are to get an Employer Identification Number. The EIN serves as a tax identifier and grants businesses the right to apply for financing, company credit cards, or pay wages to employees. You may apply online or submit Form SS-4 to the Internal Revenue Service.
Frequently Asked Questions
Generally, an LLC Operating Agreement is not a compulsory requirement to establish an LLC in Louisiana. Nevertheless, Louisiana State Legislation RS 12:1319 recommends that LLCs in Louisiana regulate their establishment with an Operating Agreement. Attempting to run a limited liability company in the absence of a valid Operating Agreement may lead to potential conflicts you want to avoid.
There is no strict rule regulating when you may create an LLC Operating Agreement in Louisiana. Therefore, you may choose to create your agreement before filing the company’s Articles of Organization or when you conclude the business formation process.
Yes. In fact, single-member LLC may find an operating agreement more crucial to the business operation than multi-member LLCs. As a single-member LLC, an operating agreement is sufficient legal proof that you are the sole owner and administrator of the company.