A Michigan LLC Operating Agreement is an internal document used by LLC entities to record how company members/owners would like to run the company.
It outlines the mutually agreed-upon policies, ownership division, management structure, and other regulations to ensure that day-to-day operations are seamlessly carried out. A Michigan LLC operating agreement is legally binding and must be signed by all involved parties to be valid. One of the reasons why some use an LLC structure of a company is the flexibility and protection (limited liability) accorded by an LLC.
Therefore, though not a state requirement, Michigan LLCs are advised to have an operating agreement to ensure the company’s limited liability status is upheld. Supporting laws used in the creation and execution of Michigan LLC operating agreements are:
Michigan Limited Liability Company Act (Act 23 of 1993): § 450.4101 to § 450.5200
Operating Agreement Laws: § 450.4308
State Definition: § 450.4102(r)
Types of Operating Agreement
An LLC can either be a single-member LLC or a multi-member LLC. Each type of LLC uses a different type of operating agreement.
Single-member LLC operating agreements
Single-member LLC operating agreements are used by an LLC business founded by one owner or member who solely possesses the business’s ownership. The agreement helps the LLC owner to document the policies, procedures, and purpose of the LLC in writing.
Download: Microsoft Word (.docx)
Multi-member LLC operating agreements
Multi-member LLC type of operating agreement is used by LLCs with more than one owner/member who shares the company’s ownership in percentages. The members use the agreement to put in writing pre-determined and agreed-on company policies and procedures. The document also ensures the LLC members’ assets are protected from any liabilities levelled against the LLC.
Download: Microsoft Word (.docx)
Why LLC Operating Agreement?
An operating agreement plays a vital role in the management of legal issues and improves workplace interactions/relationships. Given below are reasons why LLC members should consider using a Michigan LLC operating agreement form.
Protects the LLC status
Any LLC operating in Michigan is deemed a separate entity from its owners’ assets. Consequently, any legal or financial claims such as compensation lawsuits and debts cannot be conveyed to the LLC members such that their assets will be recouped to settle the claims.
An operating agreement further clarifies this specification, and the members’ assets remain protected.
Verbal agreements
Agreements have to be made to represent stakeholders’ expectations when setting up an LLC business. Instead of making verbal agreements and committing them to memory, an operating agreement is an excellent place to document all the verbal agreements made between the LLC members.
In addition, written agreements are more enforceable as they are easy to prove than verbal agreements. As a result, misunderstandings are minimized.
Protects agreements
Any agreements made between LLC members in written in an operating agreement are valid and legally enforceable in Michigan. However, the document must be signed by the participating parties, individuals, organizations, or other businesses.
Offers flexibility
An operating agreement form ensures that LLC members choose how to run their LLC in Michigan is protected from an external influence such as default LLC state laws. The members can decide how to allocate ownership, distribute funds, raise initial funding, and other management aspects.
Easy banking
A Michigan LLC operating agreement form can be used as proof of the legitimacy of an LLC company. The document can thus be presented to banks when opening a business account or creditors when applying for a loan. An operating agreement also proves how organized an LLC is, a significant consideration for investors.
Information to be Included
LLC members are permitted to include as many details as they deem necessary in running a company in a Michigan LLC operating agreement form. This article will look at the items predominantly presented in an LLC operating agreement. They include:
LLC name
The document must identify the LLC company it is meant for. This requires an LLC’s official business name that shows the entity is a limited liability company by having “LLC” or “Limited Liability Company” attached to it to be indicated. In addition, the LLC name must be strict as provided in the Articles of Organization.
Ownership
All names of the LLC members should be stated together with how much ownership each member has. Ownership is better divided based on percentages. For example, ownership can be equal or based on how much capital each member invested in the LLC.
Management
Due to the difference in objectives among LLCs, different LLCs will opt for different management structures; it can either be by the members themselves (member-managed) or managers appointed by the members (manager-managed). The selected structure must be stated and defined by highlighting who occupies what roles.
Duties of participants
Each role comes with certain obligations. An operating agreement clearly defines what each member and manager is expected to do within the LLC. For example, members will often be required to vote on critical decisions while managers execute the decisions.
Rights and responsibilities
LLC members have voting rights and responsibilities meant to ensure they retain control over significant aspects within the company. The voting rights and responsibilities bestowed on each member have to be clearly defined.
Voting rights can be equal or varied based on ownership and power within the business. All the issues or decisions that will require a vote should be outlined in the operating agreement.
Distributions
An operating agreement shows how LLC members intend to share profits or losses. Ideally, profits and losses are equally shared. However, it is not uncommon to find distributions based on percentage interest or capital contributions.
Details such as when and how distributions are to be disbursed, monthly, quarterly, or annually through bank deposits or checks, need to be stated. The person assigned to handle distributions should be named.
Meetings
A Michigan LLC operating agreement can indicate when meetings will be held, the type of meetings that will be prioritized, meetings schedule to be followed, and the person in charge of organizing the meetings. LLC members expected to attend each type of meeting must be listed to ensure that urgent decisions are made on time.
Rules for buyout and buy-sell
Operating agreements are used to outline the procedure to be used when an LLC member wants to depart, or a new member wants to join the company. Departing members may require the LLC or other members to buy their interest at a price determined through a valuation of the LLC.
Incoming members may have to pay an amount equivalent to the value of the ownership percentage they intend to have. If a vote is necessary for a buyout or a buy-sell, it should be clarified.
Succession
The operating agreement should define the procedure for succession if a member wants to transfer their ownership percentage to a beneficiary in the event of death, resignation, or retirement. The roles, rights, and responsibilities the successor can assume are also declared in the document.
Dissolution
An LLC can be dissolved or terminated voluntarily or due to external influences such as bankruptcy, failure to be tax compliant, etc. The operating agreement must indicate the person responsible for handling the paperwork and the following dissolution process.
Michigan LLCs have to file a Certificate of Dissolution with the state’s Department of Licensing and Regulatory Affairs to be dissolved. A filing fee of $10 is applicable.
Modification
Sometimes LLC operating agreement stipulations have to be altered to accommodate changes or unprecedented events. However, since it legally binds all its signatories. Therefore, it cannot be modified without observing formalities, usually a vote.
The person tasked to oversee the process, votes required to approve the changes, and members responsible for the changes must be declared.
Severability provision
A severability clause should be added in a Michigan LLC operating agreement to declare that parts of the operating agreement are independent of each other. As a result, the agreement remains enforceable even if part of it is void, invalid, or unenforceable. Therefore, the agreement cannot be legally voided by a court just because there is an error.
How to Form Operating Agreement?
An LLC entity has to be formed for an operating agreement to be required and implemented. This article has discussed how an LLC can be formed in Michigan by outlining the steps involved throughout the process below.
Michigan LLC’s name
The first thing is to obtain a unique official business name which can be done through a name search with the Corporations Division’s database. Next, the name must be registered with the Department of Licensing and Regulatory Affairs. Once selected, the name can be reserved through an Application for Reservation of Name for six months at a $25 fee.
Registered agent
Next, a registered agent should be chosen for service of process and receiving legal or government paperwork in Michigan. Finally, an individual or corporation/business with a residence or operating address can be appointed as a registered agent. This can be Michigan LLC, or a foreign LLC permitted to operate (or with a certificate of authority to transact business) within Michigan.
Choose the type
The LLC registration process should then follow the type of entity at hand. For example, a domestic LLC (formed within Michigan) is registered with the Articles of Organization. However, a foreign LLC (started outside Michigan but wants to operate within) registers with a Certificate of Good Standing and Certificate of Authority in addition.
Filing fee
Next, an application fee of $50 will be charged to the LLC. Again, both domestic and foreign LLCs have to pay this fee. Fees can be made with a check or credit card.
Submit the application
Once the fee has been paid, the application can be submitted to the state of Michigan. Ensure the Articles of Organization indicates the company’s name, purpose, duration (perpetual or specified), registered agent details, date of application, and signature and contact details of the applicant. Applications can be made online or by mail. Mail applications are sent to:
The Michigan Department of Licensing and Regulatory Affairs Corporations, Securities & Commercial Licensing Bureau, Corporations Division, P.O. Box 30054, Lansing, MI 48909
or
2501 Woodlake Cir, Okemos, MI 48864
Operating agreement
The next step is to create the operating agreement for the LLC. The agreement should be created accordingly; it can be a single-member or multi-member LLC operating agreement. Again, ensure to capture everything that will influence how the LLC is supposed to be run.
EIN
LLCs in Michigan are required to have an Employer Identification Number to be IRS compliant. Multi-member LLCs must have an EIN, while single-member LLCs need an EIN only if they have employees or want to be taxed as corporations. Other applicable regulatory requirements, such as business licenses, health permits, etc., can be obtained at this point.
Annual statements
Lastly, the LLC should file an annual statement by 15th February, the year after the LLC formation. However, LLCs formed after 30th September do not need to file an annual statement by 15th February. They are issued a pre-printed annual report three months before the due date and can thus file months before. Filing is done at a $25 fee regardless of whether it is by mail or online.
Operating Agreement Template
Coming up with an operating agreement can be time-consuming and exhaustive. Therefore, the templates can be used in creating an effective Michigan LLC operating agreement without delay. In light of this, we have made multiple Michigan LLC operating agreement templates that our readers can download for free and use to create their professional operating agreements. Download now to get started!
Frequently Asked Questions
Conduct a name search on the Department of Licensing and Regulatory Affairs website at zero cost. If the proposed name is not taken, it will be declared as available for use.
The state of Michigan does not prohibit LLC members from creating their operating agreements. Therefore, LLC members can write an operating agreement that addresses any necessary details to run the LLC.
It is not mandatory to use an attorney to create an operating agreement. However, it is recommended that all the legalities are appropriately represented for the document to be fully enforceable.
An application fee of $50 is billed to register an LLC in Michigan. However, an LLC that needs to be formed as soon as possible pays $100. An additional $25 is charged for those who wish to reserve their proposed LLC name before the LLC is formed.
The processing time depends on the application method used. Online applications ordinarily take 24hrs while mail applications take 3-5 business days. Applications can be processed as fast as 1hr but at an extra cost.
A name change can be done by amending the Articles of Organization. The LLC has to file a Certificate of Amendment with the Michigan Department of Licensing and Regulatory Affairs Corporations, the commercial Licensing Bureau, and securities at a fee. The certificate indicates the name change and the reason for amending the Articles of Organization.
