A Maryland LLC Operating Agreement is a legally binding contract outlining company operations and business structure for sole proprietors and multi-member companies.
Although this operating agreement is not needed in Maryland, it is beneficial for companies to have it. Without this document, company members in Maryland State are likely to lose their assets in case of bankruptcy or legal issues against the company since they do not have separated their assets from the business. With this document, company members will have their private assets protected and receive tax benefits.
Note: Maryland State has statutes that guide the LLC operating agreement. The supporting laws for this document include the Limited Liability Company Act (Title 4A), Operating Agreement Laws (§ 4A–402), and State Definition (§ 4A–101(p)).
With this paperwork, you will have all the details regarding the company’s operations, ownership, daily business affairs, and processes for better and easier management.
Also, you will have all the information in regards to the capital investments that the members must make to buy into the LLC and how the profit distribution will be handled. With all this information written down and agreed upon by the members, the operating agreement becomes legally binding once all the members sign the document.
Operating Agreement Template
Company members looking to create a Maryland LLC operating agreement can use the above guide to form the document. However, there is an easier and faster way to form the LLC operating agreement. You can use Maryland LLC operating agreement template given here to prepare your agreement.
These templates are free and easily downloadable, and they will help guide you to ensure that all essential information required to prepare the document is present. Download the multi-member or single-member Maryland LLC operating agreement template today and use it for your company’s benefits.
Operating Agreement Templates
Based on the company members seeking to prepare the Maryland LLC operating agreement, they can choose from different types of this contract.
Following are the types of Maryland LLC operating agreements:
Single-member LLC operating agreement
This document is meant to outline the company’s procedures and daily operations for companies with sole owners. The owner must sign the document to make it valid.
Download: Microsoft Word (.docx)
Multi-member LLC operating agreement
This document is meant to outline all the internal company policies and operations for companies with more than one managing member. For the agreement to be actualized, all the members must agree and sign the document.
Download: Microsoft Word (.docx)
Advantages of Agreement
Even though this document is not a requirement by the State of Maryland, it has excellent advantages. As an LLC member in Maryland State, this document guarantees you more benefits and protection. Here are some of the advantages of having a Maryland LLC operating agreement:
Legitimize LLC
For parties like banks, investors, or lenders, you must have an LLC operating agreement if you wish to have any transactions with them. For example, lenders will not give loans to companies that do not have this document. Also, you will need to present this agreement to the bank if you wish to open a company bank account.
Investors will want to see the LLC operating agreement before they can invest in the company. With this document, such parties can break down what they are about to deal with.
Verbal agreements
Company members require this agreement as it helps them have all the decisions they made and agreed upon in writing. With an LLC operating agreement, you can include all the verbal agreements made to prevent misunderstandings and create a reference in case of future disputes.
Avoid state interference
With the LLC operating agreement, companies in Maryland State do not experience interference from the state laws. They can operate their businesses and solve any legal issues without interference from the state laws that govern companies.
Flexibility in LLC
LLCs are flexible when it comes to their business operations. However, with this LLC operating agreement, these companies have more flexibility in running their business. This is because company members have a chance to write down how they want to run their daily operations.
Asset security
If the business faces bankruptcy or any other legal issues, company members can have their assets secure since the agreement helps separate personal assets from business assets. In addition, the company is considered an entity of its own, which means that company owners are safe from business liability and losses.
Information to be Included
For the Maryland LLC operating agreement to be complete, some details must be included. Here is the information that should be present in the LLC operating agreement:
LLC name
The agreement must include the LLC name as it appears in the Articles of Organization. The State of Maryland should legally recognize the LLC name.
This full legal name of the business is essential for identification by other parties. This means that the name should be written in full, and abbreviations are not advised, except for abbreviations that were present in the name written in the Article of Organizations. This may include variations of the phrase Limited Liability Company like LLC, L.L.C, L.C, or even LC.
Ownership
The agreement should indicate the ownership of the company. This might be based on an equal division of the company or percentages of the contribution made by each member. No matter the case, the agreement must identify the owners of the LLC. Their names, addresses, percentage shares, and titles should be well written.
Management structure
The LLC operating agreement must indicate the LLC’s management structure, how it will be used and how it can be changed if need be. The LLC’s management structure can either be a member-managed structure or a manager-managed structure.
A member-managed structure is one in which the LLC members run the business themselves. On the other hand, the manager-managed structure is one in which a manager, who has been hired by the LLC members, runs the company and handles all the operations as specified by the agreement.
Duties of members
Every member and manager must be aware of their duties, and this must be indicated in the agreement to avoid future disputes. In addition, with tasks assigned to both members and managers in the agreement, the company is bound to run more efficiently.
Voting rights and responsibilities
The voting rights of the company members must also be highlighted in the LLC operating agreement. Voting may be done in case of dissolution or to make decisions like welcoming a new member. That means you need to know who is allowed to vote and the type of voting power among the members.
Distributions
This involves the splitting of profits and losses among company members. The agreement should indicate whether the distributions will happen on an equal or a percentage of ownership basis. In addition, money distribution must be indicated in the agreement.
Holding meetings
Regular shareholder meetings are common for most companies.
However, LLCs can choose to have meetings or not. With that in mind, the agreement must include scheduled meetings for specific reasons like voting or reviewing the business operations. Failure to indicate information regarding holding meetings might cause members inconveniences.
Buyout and buy-sell rules
Information regarding what happens when existing members want to leave, or new members want to join must be included in the agreement. Such details may include voting proceedings to determine the shares to the exiting member and what capital must be paid by the new member. In addition, the rules regarding buyout and buy-sell must be well included in the agreement.
Succession planning
In case an LLC member retires or dies, dealing with such a situation will become easier if a succession plan is in place. Their membership percentage will either be given to anyone who is prioritized for their family based on the succession plans.
Dissolution
If a business dissolves in Maryland State, an LLC with this agreement must indicate the steps to take to deal with this issue. For instance, if the members all agree unanimously to dissolve the company, there should be a set plan to deal with remaining projects, file with the state and even share the profits and the capital investments made.
Possible modifications
The agreement should also indicate the circumstances that might lead to modifications of the LLC operating agreement and how the changes will be made. There should be well-defined rules and guidelines about any modifications made in the agreement like members must vote, and all agree to change the company’s management structure.
Severability provision
If a section of the agreement is found to be illegal or invalid, this severability provision clause will help protect the agreement from being considered invalid as a whole. Instead, only that section will be removed, and the agreement will remain with no need of drafting a whole new LLC operating agreement.
How to Form an Operating Agreement?
Since company members in Maryland State should have the Maryland LLC operating agreement, here is a step-by-step guide to form this document. The most essential step that members should take before they can form the LLC operating agreement is to confirm with Maryland’s State Department of Assessments and Taxation about the company’s name. Their LLC name should be unique, if a similar name is to the ones in the database, the application will be rejected.
Registered agent
The company members should first nominate and appoint an agent who will handle all the state filings on their behalf. The agent should be registered, a resident of Maryland state, and have the authority to run a corporation in the state.
Entity type
The registered agent should then select an entity type, domestic or foreign, which suits the LLC they represent. For example, domestic LLC is filed within the state, while foreign LLC is first filed outside the state. These entities can be filed using Adobe PDF or online. For the foreign LLC applications, the Certificate of Existence should be filed together with the other documents.
Fee
In Maryland State, the registered agent must pay $100 to process the LLC filings and may choose to add $50 to speed up the process. Filing by mail means that evidence of payment must also be submitted, alongside other articles, to the address below:
State Department of Assessments and Taxation, Charter Division, 301 W. Preston Street; 8th Floor, Baltimore, MD 21201-2395
Operating agreement
The next step is to prepare either a single-member or multi-member LLC operating agreement. Even though it is not required in the State of Maryland, LLC are advised to draft them to ensure proper management and business operations.
EIN
The Employment Identification Number is a social security number for companies given by the IRS is required for tax purposes. With this, the company can also hire new employees and execute financial transactions. The company can apply for the EIN by either completing the online application on the IRS website or submitting the SS-4 form.
Frequently Asked Questions
An LLC operating agreement is not a requirement in Maryland State. The U.S. Small Business Administration, however, advises LLC members to have this agreement.
The operating agreement is not the same as the Article of Organization. The operating agreement is an internal document that outlines all the company’s procedures, policies, and operations. At the same time, the Articles of Organization is a document that must be submitted to the State secretariat during the LLC formation.
A single-member LLC, just like a multi-member LLC, needs an operating agreement in Maryland State. This document offers the company owner protection of their assets from the business in case of litigation.
You can write your LLC operating agreement in Maryland. Download the templates and use them as a guide to prepare your agreement. Templates guarantee that all information required according to Maryland’s supporting laws is present in your agreement.
It is crucial to have a lawyer look over your LLC operating agreement before the final signatures. Although it is not a requirement, a lawyer will help you prepare an agreement that adheres to the regulations of the LLCs and contains clauses that protect the company, together with its members, from any unforeseen legal issues.
