Part of running a business is about protecting yourself legally, and many companies do this by having a Multi-Member LLC Operating Agreement. Other factors are outlined in a company’s operating agreement.
What is an Operating Agreement?
An operating agreement is the rules of your company. It’s an internal document that outlines how the company is managed on both an operational and a financial level. It describes what your business is, how financial decisions are made, how you and your members are paid, and how taxes are handled.
What is a Multi-Member LLC Operating Agreement?
An operating agreement for a multi-member LLC is a bit different than a single-member LLC. This is because, rather than one person owning the business, there are two or more, as well as members who have shared in the business. It will need to be witnessed by a notary public and can be a bit more complicated. It means you may need a lawyer to help you create your operating agreement.
Several areas need to be covered when creating your operating agreement. Aside from describing what your business does, it also outlines who owns the company, and how much of the company each member will own. There are no restrictions regarding the number of members you have, or how you choose to split the shared ownership. You also need to include how the business is managed and who is responsible for each area of the company.
Finances and Taxes
Another area of importance that needs to be outlined in an MMLLC Operating Agreement is the financial aspect of the business. It will include how the business pays its taxes, how profits and losses are handled and distributed to the company’s members, and how much the owners will be contributing to financing the business.
Other information you will need:
- The LLC’s formation date
- The name and address of the registered agent and address registered to the business
- The names and addresses of each member
- Each members ownership percentage
Keep in mind that your operating agreement can be updated and amended as needed. Once changes have been made, all of the members will need to sign the new deal and, in some states, you may need the document to be notarized.
To get you started, you can download one of our free templates and samples. It will give you a clear idea of what needs to be included in your operating agreement and can help answer your questions.
- MS Word
Who Would Need an Operating Agreement?
There are several situations where you would need to present your MMLLC Operating Agreement:
- To a lender when seeking financing
- To title companies, if you are purchasing real estate for the business
- To tax and accounting professionals when seeking their advice
- To a lawyer when seeking legal advice
- To a potential investor when you are seeking funding
- To a court, if you are in a legal battle
It’s essential to have an operating agreement to protect yourself legally. For example, if a court found you were running an LLC business but had no operating agreement in place, they could legally go after your assets. With an operating agreement, your assets would be protected.
By law, each state requires an LLC to have a registered agent who will be the recipient of all correspondence and communication for the company.
Frequently Asked Questions
As mentioned above, an LLC, whether single-member or multi-member, needs to have a registered agent. The role of a registered agent also referred to as an “Agent for Service of Process, is to handle the communication aspects of the LLC. They need to have an address registered in the state the business operates from.
It may depend on the state you are running your business in. While getting an operating agreement, notarized isn’t a requirement in some countries, and it is a smart practice to do som when you have more than two members.
Having an up to date Multi-Member LLC Operating Agreement has several benefits, and having one in place can not only avoid red-tape somewhere down the line but also gives you peace of mind.