When an LLC is owned and run by more than one party, the owners commit to their legal contractual agreement in a document known as the Minnesota LLC Operating Agreement.
The document keeps records of critical information about the company and terms that foster harmony and peace in running business activities. A Minnesota LLC operating agreement acts as a guide for handling various business activities and occurrences. These include how profits and losses are shared and the procedure for handling the departure of one of the owners.
Besides, the written legal document indicates the conduct of the LLC’s activities as well as the rights and duties to be carried out by managers. If the owners of the new LLC ignore the need for an operating agreement, any disputes would be resolved by the default rules set by the state which may not favor the interest of the owners and company at large.
The laws that oversee issuance and management of Minnesota LLC operating agreement are:
Minnesota Revised Uniform Limited Liability Company Act – Chapter 322C
Operating Agreement Laws – § 322C.0110
State Definition – § 322 C.0102 Subd. 17
Types of the Agreement
There are 2 types of this document, namely:
Minnesota Single Member LLC Operating Agreement
Sole entrepreneurs acquire this type of operating agreement to document crucial information like the business operations. It, also, clearly shows the specific business responsibilities without regard to any other properties the owner might have.
Download: Microsoft Word (.docx)
Minnesota Multi Member LLC Operating Agreement Template
This is issued to a company with more than one owner to dictate and govern their business relationship for as long as they remain partners.
Download: Microsoft Word (.docx)
Why to Create Agreement?
The following are the main reasons why LLC owners acquire a Minnesota LLC operating agreement:
The state of Minnesota’s Section 322 C.0102 Subd. 17 strongly advises owners to certify their agreement with this document to solidify their dedication. The state further advises LLC owners to use oral, written, implied, or an amalgamation of any of the three.
Protects the LL status
LLC owners who are protected by the document are less prone to the jeopardy of personal liability to the LLC. Also, it facilitates the authority and credibility of your business. An operating agreement can save the day during the proceedings of a lawsuit. This is because it could bring to light what amounts to business assets and separate them from personal assets.
Protects from default rules
In the absence of an operating agreement, legal disputes would have to be resolved in accordance with Minnesota’s default rules. On the other hand, an operating agreement can dictate how to handle disputes without the interference of default state laws.
Clarifies verbal agreements
Word of mouth has its vulnerabilities because people’s way of thinking may change with respect to developments. With a signed agreement on paper acting as a legal binder, there is an assurance of governance consistency for a long time to come.
Owners of LLCs have a lot of freedom to decide and document how they want to run their business. Laying down the rules during the onset of the arrangement is advisable. Even better, the owners can amend their governing document as they please.
Sets the appropriate mindset
By setting down the rules, owners develop a sense of belonging which drives away any feelings of paranoia that may make them hold back from fully indulging in the business.
Helps gain favor for loans
With a Minnesota LLC operating agreement, owners stand a better chance of gaining favor with banks and lenders.
An operating agreement spells out the expected contributions from each owner. This way, the document diminishes the likelihood of any conflicts, disagreements, and misunderstandings.
Information to be Included
The Minnesota LLC operating agreement carries essential information that sets the stage for how the business operates.
Some of the functionalities included in the document include the following:
When filling in the name of your new business, confirm that it is similar in every way to the name you used when obtaining your articles of organization in the registration phase. Everything from spelling, punctuation, to the designator (LLC), should not differ in any way. Remember opposing sides in a court of law could utilize such mistakes to weaken the document’s influence.
Regarding organization, an operating agreement states the official date the company was formed, its members, and how the owners divide the ownership amongst themselves. The ownership can be either equal or show the specific units claimed by each owner.
The division could either be equal ownership or show what percentage everyone owns in case of unequal distribution of ownership. This section should, also, outline the determiners and metrics that define ownership. You should record the names and personal information of each member alongside how much of the company they own. The sum of all percentages should be 100%.
There are two ways in which an LLC can be managed. When the owners perform management duties themselves, it’s referred to as member-managed. On the other hand, the owners may decide to assign management duties to an owner or an outside professional who is not a member. In such a case, the LLC is said to be manager-managed.
Since management is a key determiner of all other aspects of business, you should be keen to indicate the roles of each member or manager, including their level of authority and voting powers.
Roles of members
Your Minnesota LLC operating agreement should describe the obligations assigned to the members and managers if there are any. This helps to keep every leader on their toes in the execution of their official roles and responsibilities. Keep in mind that the duties assigned to members or managers largely depend on the type of business in question.
There are some settings that require members to only attend annual meetings while others require the members to have precise fiduciary duties or actively engage in the day-to-day activities of the business.
Voting rights and powers
The document should feature the voting rights of each member. Will business milestones, such as the acquisition of property or debt, be subject to a unanimous consent or a supermajority model? Similarly, owners can decide to grant critical decision-making power to managers while they leave others to themselves.
What did the owners inject into the business in terms of starting capital? Is there anyone who did not inject money but brought skill into the picture? How are the owners quantifying that kind of contribution? Such are the questions that this section should answer. The section may also include future arrangements for sourcing funds.
Profit and loss distribution
Default rules dictate that a member’s equity share determines their profit cut, but the owners reserve the freedom to come up with their own rules. Besides, the document should capture the frequency of distribution, how losses are shared, and the party that oversees the payments.
Meetings are an influential contributor to the success of any business. They help in assessing progress, fostering meaning, and rebirthing purpose. The document should describe terms for holding meetings and go on to spell out fines for missing critical meetings. It should also point out some of the occurrences that shall necessitate the calling of an emergency meeting.
Buyout and buy-sell rules
Naturally, every member can opt-out when they so desire. The Minnesota LLC operating agreement should state the rules that will ensure a smooth exit. This includes determinants of the compensation to be awarded to the exiting member and what the exit will mean for the remaining members.
This section should also capture information about how they will share the resulting equity percentage that the former owner left behind. If you want to make it possible for new members to join in the dance, spell the rules to govern the process, including what the new members would have to offer in terms of contributions.
Plan for succession
In the case of the death of a member, the document should spell out the successor of their percentage and the rights of the successor in the operations of the company. Every member should proceed to add the information in their will. There should be guidelines as to what the remaining members would do with the deceased’s equity in case the deceased did not add a successor by the time of death.
Dissolution is often a complex process that involves a myriad of critical activities such as liquidation and selling of assets. Also, the owners have to pay creditors before the remaining resources amongst themselves. In this line, the document should carry information as to what will trigger a decision to close operations.
Minnesota requires a statement of dissolution and a statement of termination, each requiring a fee of $35. As such, the document should record who will be responsible for running such type of paperwork.
The rules you define on your operating agreement are amendable. This helps the business to evolve especially in today’s modern, fast-evolving, technological business space. Establishing the rules to help with amendments might mean defining a voting model and indicating who shall be responsible for executing the corrections once they have been deliberated on.
Severability provision clause
Contracts feature a segment declaring that the enforceability of a specific section of the document does not affect the power of the rest of the document. By including this clause in your Minnesota LLC operating agreement, you will be positioning yourself in a better position in case an error is discovered especially during legal proceedings.
Are you ready to apply for a Minnesota LLC operating agreement? We are here to help you. We have countless predesigned templates to suit different needs depending on the type of your LLC. Download your preferred template today for free and start creating your Minnesota LLC operating agreement:
How to Form an Operating Agreement?
Assuming you have already confirmed that your business name exists nowhere else, follow the following steps to acquire an operating agreement:
Step 1: Choose a registered agent
Your agent of choice could be either an individual or a business, but they must be in operation in Minnesota. The agent shall be responsible for receiving various correspondence for the company, including service or process notices and state filings.
Step 2: Select the type
There are two types of LLCs to choose from. These are domestic LLCs for businesses confined to Minnesota and Foreign LLCs for existing businesses that wish to run operations in the state. You should file the appropriate type of LLC depending on whether it is a domestic LLC to operate within Minnesota or an existing LLC that was started in another jurisdiction.
Step 3: File your registration
You can submit your registration files in the following ways:
- Domestic – Articles of Organization
- Foreign – Certificate of Authority
- Online – Create an Account, then begin the Filing Process
- Paper – Complete the Adobe PDF application
Step 4: Settle the corresponding fee
For domestic LLCs, you will part with $155 for both online and physical submissions. The price for submitting by mail is $135. The state requires foreign LLCs to pay $205 for online and in-person payments, or $185 by mail. Note that mail submissions require you to pay to the Minnesota Secretary of State.
Step 5: Submit your documents
While online applications can easily be uploaded after completing payment, physical or mail submissions are sent to this address as provided by the state.
Minnesota Secretary of State. Business Services. Retirement Systems of Minnesota Building, 60 Empire Drive, Suite 100, St Paul, MN 55103
Step 6: Acquiring agreement (optional)
The registering owners can go ahead and include a document that displays the policies that will be driving the business, among other core information.
Step 7: Employer Identification Number
LLC owners should not forget to apply for the 9-digit, one-time EIN number issued by the IRS for managing taxes of employees. You can complete the registration on the IRS Website or through mail Form SS-4.
Frequently Asked Questions
While Minnesota does not require an LLC operating agreement, it is advisable to acquire one to protect your business and also appeal to financial lenders.
You should process your operating agreement during the starting of business so as to minimize the chances of future conflicts and to facilitate the smooth running of business operations.
You do not have to file your operating agreement with Minnesota’s secretary of state. You may file the document in a number of ways. An advocacy company is a good option.
Yes- obtaining a single-member operating agreement in Minnesota will secure your liability protection as well as keep default state rules off your business. Also, banks and other creditors may want to see the document before helping you.
Minnesota does not require a lawyer to be part of the process, but you can go ahead to hire one for legal advice.