When business partners come together and start an LLC, they should obtain a Mississippi LLC operating agreement form. The document carries every crucial information about the business and the terms of their partnership.
The information consists of each owner’s respective equity, the criteria for sharing profits and losses, voting rights, and the methods of business operations.
While the state does not require LLC owners to file the document legally, it is highly advisable to prepare one for the many benefits it presents. The benefits include fostering the credibility of the business in people’s eyes and mitigating future destructive conflicts.
The state of Mississippi directs the preparation of operating agreements through the following laws:
Revised Mississippi Limited Liability Company Act – Title 79, Chapter 29
Operating Agreement Laws – § 79-29-123
State Definition – § 79-29-105(t)
Types of the Agreement
You can obtain the following types of LLC operating agreement forms in the state of Mississippi.
Mississippi Single Member LLC Operating Agreement Template
This type of agreement is viable when the LLC is owned by one party. The document holds vital information such as the internal activities of the business and terms of operations. It also furnishes liability protection to the owner.
Download: Microsoft Word (.docx)
Mississippi Multi Member LLC Operating Agreement Form
This type of operating agreement works when the LLC is owned by more than one party to record their rules and terms of working together.
Download: Microsoft Word (.docx)
Benefits of Agreement
When prepared and signed by the members of the LLC, the partnership agreement tables the following benefits:
Retains agreement per the law
Mississippi has set out state-wide laws that govern the operation of LLCs. These laws are often utilized most commonly to find fair solutions to disagreements among members of an LLC. The problem with these laws is that they might not leave every member satisfied.
The good thing is that you can vector away from the jaws of these laws by outlining your own set of rules on your company-specific operating agreement.
Clarity in verbal agreements
Naturally, you already discussed all the terms before starting your business. But the verbal agreements you made may not mean much when operating the actual company and solving issues. Preparing a Mississippi LLC operating agreement form cements the verbal agreements and gives you a central, balanced, and wholesome document to look back to when the need arises.
Preserves limited liability
For an entrepreneur running the LLC solely, the operating agreement guarantees that your limited liability dignity is maintained in a law court. As if not enough, the document facilitates the LLC’s credibility, especially in the eyes of potential investors.
Recommendation by the state
Under the code Section 79-29-105(t), Mississippi urges the owners of LLCs to acquire an operating agreement to serve as a governing tool for the smooth running of the company.
The document sets out rules, expectations, and responsibilities for each owner. By so doing, it mitigates the occurrence of misunderstandings and conflicts. If any disagreement arises, the members can refer to the operating agreement to solve it seamlessly.
Helpful in receiving funds
Some banks and lending companies may dictate that an operating document is a requirement to consider giving you funds. They do so to ascertain that the lending party has the mandate to borrow on behalf of the LLC.
Attract potential investors
Owners are in a better position of landing excellent investors when these investors go through the LLC’s operating agreement.
Information to be Included
The structure and content of your Mississippi operating agreement are dependent on factors such as the type of business and the management style as agreed upon by the owners. The following are critical elements of a conventionally complete operating agreement:
When you are ready to draft your Mississippi operating agreement, start with the company formation segment. The section holds the general information of your business as it appears on the certificate of formation you filed when creating the company.
This information includes the legal name of the LLC, the company’s organization date, a Mississippi registered agent, and the primary purpose of the business. The section also lists the official names of the owners of the LLC.
Distribution of ownership
In this section, the owners should indicate how they share the ownership of the company. For example, a sole owner of an LLC should indicate that they possess 100% of the company’s equity interest. On the other hand, multiple owners need to establish and record how much equity each member owns. The other commonly used criteria come into play when the owners use capital contributions to assign ownership.
For example, let’s say an LLC owned by six members needs capital of $10,000 to start operations. If one of the owners foots $5000 and the others contribute $1000 each, then the principal owner would have 50% of the equity while the rest share the remaining 50% (10% each for the other five owners).
Duties of the members
In the future, this section will protect you from being subjected to the default, general LLC laws of Mississippi.
The information to feature here includes the management setting of the company, the qualifications that a manager must have to be hired, the sphere of authority, the responsibilities for each member or those of the hired manager, and the procedure for making and approving critical business decisions.
There are two structures of LLC management. Firstly, a member-managed LLC is the one in which owners act as managers. In such a case, be keen to outline all the conditions, duties, and limitations for each owner.
The second setting is the manager-managed structure common among the LLCs with a more significant number of owners. Again, be sure to mention this alongside the duties that the managers shall be performing.
Voting rights and responsibilities
There are no fixed rules for determining the voting power of the owners. However, the standard way of doing it is to get their voting rights in line with their equity. Another way is to turn a blind eye to the ownership percentages and assign each owner one vote. Your operating agreement should also feature the assignments of every member concerning decision-making and other business activities.
For example, in the case of a manager-managed company, outline the manager-selection criteria and indicate the decisions they are allowed to make without having to consult the owners. Also, owners should indicate that they shall be solely responsible for making decisions.
This segment carries information about how much money or resources each member contributed to the start-up. Besides money, contributions may include hands-on services, skills, and property such as land and cars. Even if this can be verified through other means like bank statements, it is vital to include it here for formality purposes and because this is often the determiner for the distribution of equity.
Distribution of profits
Every member of the LLC has a right to receive profits. Therefore, besides filing the ownership equity and capital contributions, you should indicate how the owners will share the profits.
A common criterion for sharing profits is using the ownership equity to calculate how much each member receives. Other information to include here is the year the profits shall be disbanded to respective members.
This section holds information about the taxation preferences as agreed upon. For example, you might decide to be taxed as a C corporation or an S corporation. Conventionally, the IRS taxes single-member LLCs as a sole proprietorship.
The IRS considers pass-through entities as one. In this setting, owners can claim losses, credits, and other deductions on personal tax retune You may decide to change your tax classification, but it’s wise to do so under the guidance of a tax professional so that you select the best options.
The operating agreement should also feature a procedure to handle the departure of a member, either by choice or by death. Indicate whether members can freely sell their equity to new members and if members shall be granted the right to the first refusal in such a case. Additionally, it would be best to write the rules governing the sale of equity to existing members and the only option given to members looking to sell.
Can the equity go to the deceased’s next of kin, or will it be distributed among the remaining members? Such information may prove critically helpful in the future, especially if a member passes away without leaving a will.
Buyout and buy-sell rules
The future is filled with uncertainties, which is why your operating agreement should outline directions for when a member decides to resign or retire in case of bankruptcy or when an owner dies or becomes incapable of being part of the business for various reasons.
Additionally, the document should feature what will happen if a member divorced and the spouse automatically received equity in the LLC. How will such an occurrence impact clauses such as voting rights? Finally, members can choose to sort the services of a lawyer who knows the state directions and industry constraints.
Naturally, partnerships may come to a halt for various reasons, like the mutual agreement to stop business due to excessive losses. If the day to close business comes, the document should be able to guide the whole process.
For instance, it should indicate who will be responsible for the initiation of dissolution, the voting procedures for closure, and the occurrences that could initiate a motion to close business. The document should also tell how the owners will share assets and other resources after clearing all debts and obligations as required by law.
The severability clause is commonly used in contractual agreements. It states that the invalidation of one segment of an operating agreement should not render all other parts of the document invalid as well.
Operating Agreement Template
Creating your Mississippi LLC operating agreement form from scratch may not be the best idea as it could be cumbersome and prone to unprofessionalism and awkward format. That is where we come in.
We will provide you with modern, professional templates that will simplify your creation process immensely. The templates, which are downloadable for free, are fully customizable and give you the liberty to write all the text you want.
How to File the Agreement?
Note that the state of Mississippi requires you to file a unique name that does not exist anywhere in their records. Therefore, proceed to the following steps if you have already confirmed the uniqueness of your business name.
Select a registered agent
The first step is to contact a registered agent who shall bear the responsibility of receiving correspondence and process services on behalf of the LLC. The agent could be an individual who stays in the state or established an active business and running there.
Create an account
Mississippi is one of the states that has entirely digitized the filing process, meaning that the state does not consider applications submitted physically or by mail. Instead, the state only reviews online applications.
Therefore, you need to create an online account with the secretary of state to proceed with your application.
Declare LLC type
There are two types of LLC to choose from:
- A domestic LLC is an LLC that is initially made in the state of Mississippi
- A foreign LLC is an LLC that has roots in another state and wishes to expand in Mississippi.
Go on to complete your online application with the Secretary of State
Pay the corresponding fee
The fees you are supposed to pay are $50 for a domestic LLC and $250 for a foreign LLC.
Acquire an operating agreement
While the state does not demand that you prepare an operating agreement, it is in your best interest to draft one for the smooth running of your business for a single-member LLC operating agreement form and multi-member LLC operating agreement form.
Get employment identification number
Once you are done, go on to apply for an EIN if you plan to hire employees now or in the future. The IRS utilizes the number to tax procedures. You can apply for your EIN either by Mail or Online.
Frequently Asked Questions
The Mississippi state does not require you to file an operating agreement. However, preparing one is very beneficial as it sets the ground for a smooth running of a business. In addition, it prepares you for the future by recording rules, responsibilities of owners, and other critical guidelines for approaching problems.
You can prepare your Mississippi operating agreement after you have successfully filed your Articles of Organization. However, you can document it earlier if your bank of choice asks for it when opening your bank account.
A private owner can benefit from an operating agreement, especially when impressing banks and other lending companies. Also, it sets the base for the business and the owner to be treated separately in a court of law.
You can write an operating agreement so that you tailor it to fall in line with the specifics of your business. Even better, you can utilize a template to simplify your work and ensure the document is professional and executed in the correct format.
You do not need a lawyer as you prepare your Mississippi operating agreement. However, a lawyer could be beneficial because they know the laws well surrounding the running of the business in Mississippi. In addition, the lawyer may help to uncover vital points regarding the company and clarify various constraints.