A Nevada LLC Operating Agreement is a fundamental business contract that specifies a company’s exact operating procedures.
To create a Nevada LLC, this agreement first outlines all of the members within the business and describes their management powers and responsibilities. It will also offer some protection to its members, separating them fiscally from the company itself. In fact, an operating agreement also gives a certain level of tax benefits that would be otherwise unavailable.
This document must be signed by all members of management, binding them to the duties included in the agreement. The Nevada LLC operating agreement is intended to guide all of the operations and activities of the company, which, in turn, improves communication within the entire business.
Limited Liability Company Act: Chapter 86
Operating Agreement Laws: NRS 86.286
State Definition: NRS 86.101
Types of Operating Agreement
There are two main types of LLC operating agreements: Single-Member and Multi-Member. The specific legal definitions can be found here:
Single-member LLC operating agreement
Single-member LLC operating agreement: This type of Operating Agreement applies to businesses owned by a sole proprietor or sole manager.
Download: Microsoft Word (.docx)
Multi-member LLC operating agreement
A Multi-member LLC operating agreement is adopted when there are two or more members/owners of the LLC.
Download: Microsoft Word (.docx)
Benefits of Operating Agreement
There are numerous benefits to utilizing a Nevada LLC operating agreement. Some of the benefits include:
Verbal agreements
To avoid misunderstandings from verbal agreements, an LLC operating agreement clarifies all member’s duties and responsibilities. Even if you believe that everyone is on the same page, a legally binding agreement in writing is still preferable. This way, absolutely all the members in the business are on the same page, avoiding potential headaches and even legal fees.
Protect LLC status
The operating agreement guarantees that your company maintains a legal limited liability status. This means that you can keep your personal and business finances separate, preventing courts from merging the two. This is particularly useful for single-member LLCs.
Internal transparency
Clear, transparent business practices are crucial to maintaining the trust and a healthy work environment. Having clear goals on how to raise capital, as well as on expansion plans are clear specifics that investors and lenders would need to see.
Protection of agreement
Nevada, like most states, has generic rules that apply to all LLCs. However, they might not be in the best interest of every company. So by crafting this specific document, the company guarantees the desired protections and prevents the state from applying a blanket rule.
Prevent misunderstandings
As people are prone to misunderstandings, it’s essential to make sure that the very core of a business is crystal clear. These misunderstandings can stem from minute details such as change in ownership, individual duties, payout plans, etc. Having an operating agreement in writing guarantees no one can have false expectations and, ultimately, stop disputes before they even happen and certainly before they lead to legal action.
Default LLC status
Specifying the company’s structure and duties with an LLC operating agreement allows the members to maintain a more substantial control. In addition, this will prevent the company from defaulting to generic Nevada LLC statutes, which could be detrimental.
Business organization
With clear guidelines about the structure and organization, it ensures that everyone is working towards the same goal, and everything runs smoothly.
Clear ownership agreements
It’s important to specify precisely how the business is divided in terms of ownership. It could be split in several ways, such as through percentages or via membership units similar to how stocks work. With the operating agreement, all possible questions and details can be documented and described.
Credibility to bank
Many banks in Nevada and potential business partners require an operating agreement before authorizing any loans. It demonstrates the company’s professionalism and proper establishment to a bank or lender and, therefore, is trustworthy enough for the loan.
Professionalism
Finally, the document helps set the company’s structure, so every employee and member will know what their duties are and therefore will not waste time thinking about what they should be doing, leading to efficient business proceedings.
Information to be Included
Following is the basic information that is needed to be added in the Nevada LLC operating agreement:
Company formation
It’s necessary to include the name of the company, all of the names of the members, as well as the official address. In addition, all of the essential information that defines the company should also be included, such as the purpose of the business, Nevada registered agent, and the location of any other key LLC documents.
Ownership
The division of ownership must be explicitly included in the Nevada LLC operating agreement. Even in cases of single-member LLCs, it should still be written down. However, LLCs with multiple members will benefit from this section the most. Here, the exact percentages of business ownership can be detailed in whichever way the members agree to.
Duties of members
Clarifying the exact powers and duties of each member and manager is fundamental to the operating agreement. The document should include all the information about the functions of the members and include how the business will be managed. As some members may choose not to be involved with daily functions, the agreement can guarantee that.
It should be noted that the default Nevada laws prefer member-managed LLCs. This means that if you don’t include this information in the operating agreement, the state will default to treating your company as if it was member managed.
Voting rights and responsibilities
Many significant business decisions will require a consensus or a vote by the members, so the Nevada LLC operating agreement should include each member’s voting rights and the weight of their vote. For example, the document can specify whether everyone gets one vote or is weighted based on ownership percentage. Either way, this information should be included.
Capital contributions
The agreement must also detail the amount of capital that each member is investing into the company. Though most people have already agreed on these contributions before drafting the operating agreement, it is important to make a clear record of the cash, property, or services that each member is providing.
Taxation
Since LLCs have many options for taxation procedures, the operating agreement should list out exactly how the company chooses to file its taxes. For example, the LLC may be taxed as a partnership, a C corporation, or an S corporation. While these categories can be edited further on, it’s still important to clarify at the beginning.
Distribution of profits
One of the most vital sections of the agreement is the distribution of profits section. How will profits be paid out, how will the percentages be determined, and what percentage of profits goes to each member are essential factors that need to be determined here.
Succession planning
Sometimes current members will decide to leave the company, so the document must outline how this procedure will be handled. Whether other members inherit the leaving party’s ownership or be sold is an important decision. The selling procedure should also be outlined if that is the case.
Buyout or buy-sell rules
Like succession planning, the operating agreement should detail the buyout provisions based on any possible circumstance: if a member retires, files for bankruptcy, get divorced, etc. By specifying these rules at the very beginning, it guarantees that there aren’t any possible disputes later on.
Holding meetings
Communication is vital in the business world. Since meetings are a key part of ensuring that the company collaborates, the operating agreement should determine how often meetings should be held.
Dissolution
Even LLCs that are not planned with a specific dissolution date need to have all the information about this process included in their operating agreement. In addition, the document should include all the information about how this process can be initiated and the fiscal responsibilities of each member after the dissolution is completed.
Severability provision
This is a statewide standard to be included in your Nevada LLC operating agreement. This clause will state that even if a different clause in the agreement is determined to be unenforceable, the remainder of the document will remain valid.
How to File an LLC Nevada?
To file an LLC in Nevada, the appropriate documents must be collected and properly filed with the Secretary of State. The following documentation should be provided upon filing:
Choose a registered agent
All companies in Nevada must have an agent to deal with all business-related documents. An LLC may choose either an agent with a legal residence in the state or a Domestic/Foreign business operating in the state to be elected to receive all legal demands given to the LLC.
Domestic or foreign
The LLC must be categorized into either domestic (forming a new LLC within Nevada) or foreign (expanding an existing LLC into Nevada). The main difference to keep in mind before continuing is simply the jurisdiction applied, based on where the business was originally formed.
File paper
The documents may be filed electronically, by mail, or physically to the Secretary of State. Domestic LLCs must include the Articles of Organization, while Foreign LLCs should include their Application for Registration.
Fee
The payment of a $75 filing fee is required via a check or money order to the “Secretary of State”. It should accompany all the articles, delivered to the following address:
Secretary of State, New Filings Division, 202 North Carson Street, Carson City, NV 89701-4201
Operating agreement
The document should be reviewed and signed by each member. If this is not delivered, the default LLC operating agreement will be applied.
EIN
The Employer Identification Number is required for the business to complete financial transactions of any kind. The EIN is necessary in order for a business to pay its employees, apply for loans, and open any company bank account. It can be obtained free of charge on the IRS website or by submitting the SS-4 Form.
Operating Agreement Template
A sample Nevada LLC operating agreement template can be downloaded for free here. Regardless of the specific needs of a company, it can be easily adjusted to fit the needs of the future LLC.
It includes all the necessary provisions for any legally binding contract, with an easy-to-follow format which facilitates the entire process. As it is can be easily customized, it makes for a great starting point for you to get serious with your business.
Frequently Asked Questions
Legally, they are not required. However, if a business chooses not to draft an LLC, it will default to Nevada general statutes.
It is advisable to draft the operating agreement simultaneously as the Articles of Organization are filed.
In the case of a necessary amendment, all members should vote to approve the amendment. It should then be documented formally and kept with the original operating agreement.
It is certainly advised to have a lawyer review the operating agreement, at a minimum. This guarantees that the contract is enforceable and outlines a strong foundation for the company.
