A North Carolina LLC Operating Agreement is a written document executed by Limited Liability Company members to outline a blueprint of their companies ownership, rules and regulations, and other related aspects of running the business.
While it is not legally required in North Carolina, it is recommended that all businesses possess this document if their members hope to be protected from liabilities arising from litigation brought against the company. In addition, the operating agreement helps members separate their assets from those of the business, protecting them from claims made by their creditors.
The following are North Carolina statutes that provide a legal definition and explanation of a North Carolina LLC operating agreement:
North Carolina Limited Liability Act– Chapter 57D
Operating Agreement Laws– § 57D-2-30
Definition– § 57D-1-03(23)
Types of Operating Agreement
A North Carolina LLC operating agreement can either be a Single-member or Multi-Member LLC operating agreement.
Single-member LLC operating agreement
Companies with only one member use a single-member LLC operating agreement. It separates and protects the personal and financial assets of the sole owner.
Download: Microsoft Word (.docx)
Multi-member LLC operating agreement
Companies with more than one member use a multi-member LLC operating agreement to establish rights, responsibilities, and ownership between them. It also helps outline the operational procedures of the company.
Download: Microsoft Word (.docx)
Importance of Operating Agreement
A North Carolina LLC operating agreement helps members of the LLC avoid disputes among themselves. Outlining all aspects of how the business should be run ensures that members can refer to the document when disagreements arise. Operating agreements, therefore, prevent misinterpretation and false recollection of terms and conditions agreed on by members.
The operating agreement helps stipulate in writing a company’s preferred operational and management structure. It, therefore, ensure that the LLC is not subject to North Carolina’s default laws. The state default laws are generalized and may not suit the companies operational and management needs.
The North Carolina LLC operating agreement helps the company establish its credibility as an entity. Financial institutions such as banks may request to see a copy of the operating agreement before permitting a company to open a business bank account. It can also be used when an LLC is applying for loans and grants or attracting potential investors and partners.
An operating agreement helps a company protect its limited liability status. Protection of the LL status ensures that if the LLC is involved in a legal dispute, members’ assets are shielded by the law should judgment be found in favor of the claimant. Therefore, members are expected to ensure that their North Carolina LLC operating agreement details the separation of their business assets from their assets.
Information to be Included
A North Carolina LLC operating agreement is structured according to the preference of the company’s members. However, the document must contain certain vital elements. The inclusion of these vital elements ensures that an LLC captures all relevant details about its operations. The following is information that must be found in a North Carolina LLC operating agreement:
The operating agreement should contain the LLC’s name as it appears in the Article of Organization. North Carolina state laws require that LLCs avoid using restricted or prohibited words. Companies must review the list of words they are prohibited from using when naming their LLCs. The end of the name should contain Limited Liability Company or an appropriate abbreviation such as ‘LLC’ or ‘LC.’
The North Carolina LLC operating agreements should contain a list of the members’ names, percentage of ownership, and capital contribution. Each member’s ownership percentage can be determined by their capital investment in the company or active involvement in the business management.
The management structure members have opted to use should be indicated in the North Carolina LLC operating agreement. Members can either opt to use a member-managed or manager-managed structure.
The member-managed structure in North Carolina’s default management structure is stipulated in its laws. Suppose members opt to use the manager-managed structure; they must outline how many managers will be hired and how the positions created will be structured.
Duties of members
Each member and manager’s responsibilities in the LLC should be outlined in the North Carolina LLC operating agreement. Member and manager’s exercisable powers should also be outlined. The powers and duties should be written in detail to avoid confusion or conflicts. Each member and manager’s involvement in the company will determine the duties and powers allocated.
Rights and responsibilities
The North Carolina LLC operating agreement should contain the voting rights and responsibilities of all members. Both silent and active members should have voting rights and responsibilities. Details on who can vote and when voting can take place should be indicated in the operating agreement. Information on how frequent voting can occur and whether members can vote remotely should also be indicated.
Distribution of profits
An operating agreement should contain information on how profits are distributed among members. Members should select a suitable method of dividing the profit among themselves. For example, profits in an LLC can be divided equally, according to ownership percentage, capital contribution, or other means preferred by members. The frequency and method of distribution selected by members should also be indicated in the North Carolina LLC operating agreement.
Procedures outlining how meetings can be scheduled and held should be included in the North Carolina LLC operating agreement. It is not a legal requirement for meeting guidelines to be provided; however, it is advisable to include them in the document.
In addition, the operating agreement should contain information on when, where, how, and who can hold or call for meetings. Information on how frequent meetings should be held should also be mentioned.
Buyout and buy-sell rules
The buyout and buy-sell rules should be followed when a member wants to transfer ownership to another member or a third party. The North Carolina LLC operating agreement should outline how members will be paid out when they transfer ownership.
Details on who should be presented with the first opportunity to buy out a member should also be provided. The operating agreement should contain the process used to allow new members in the LLC, their rights, and the amount they will be required to invest in the company.
Dissolution of the LLC
The dissolution clause outlines the procedures that will be used to wind down the company. The North Carolina LLC operating agreement should outline the number of votes needed to decide how the LLCs will be dissolved and what will happen to the business assets.
The dissolution plan outlined in the operating agreement should be detailed, especially when referencing the LLC’s assets, to avoid disputes among members in the end. North Carolina state laws require members to file an Article Of Dissolution when winding down the company and a fee of $ 300 to file this document.
Modifying the agreement
Procedures on how modifications can be made to a company’s LLC should be provided in the operating agreement. Making changes to the operating agreement ensures that a company updates the document to suit its growth and development.
The number of votes required for changes to be made and when voting can state place should be mentioned. The Article of the organization will also need to be updated when the operating agreement is modified to ensure that both documents match.
Operating Agreement Template
Creating a North Carolina LLC operating agreement can be time-consuming and expensive. To help ease the process, we have provided freely downloadable North Carolina LLC operating templates.
These templates are easy to use and will help guide you through the formation of your document. Moreover, the templates will also give you an idea of what an operating agreement should look like, and the information contained in it.
How to Form Operating Agreement?
For an operating agreement to be created, an LLC must be formed. Understating how an LLC is formed ensures that a company meets all its legal requirements during its formation. It also helps ensure that the information contained in the operating agreements matches what is indicated in the legal document the company presented to the state. The following guide explains how to form a North Carolina LLC:
The company must start by designating a registered agent. The registered agent is an individual that receives filings and notices from government agencies on the company’s behalf. The registered agent will therefore act as a contact for the LLC. The agent should be a resident of North Carolina.
Type of LLC
The type of LLC is determined by the filing circumstances that the company is in need for. A company can either be a domestic or a foreign LLC. Domestic LLCs are companies formed within the state, while foreign LLCs are companies formed outside the state. This information will ensure that the company’s file documents align with their type.
Complete the application
Companies will then be expected to file and complete their application documents. Domestic LLCs will be expected to complete an Article of Organization, while foreign LLCs will be expected to complete a Certificate of Authority as North Carolina state law stipulates.
A foreign LLC will also be required to submit a Certificate of Existence or a similar document to prove its existence in another state. This document should be no less than six months old and should be authenticated by an official in the jurisdiction the company originates.
Next, the company must pay the state stipulated fee. The fee paid will depend on whether the company is a foreign or a domestic LLC. Foreign LLCs will be expected to pay $250, while domestic LLCs will pay a fee of $125.
Companies that file their documents online can pay the fee using a credit card, while those that opt to send the documents via mail will be expected to write a check to the North Carolina Secretary of State. The check should be attached to the application documents filed, put in an envelope, and sent to Corporation Division, PO Box 29622, Raleigh, NC 27626-0622.
The LLC should create the operating agreement. The operating agreement will prove each member’s investment and contribution. All members of the LLC should sign the operating agreement. Members must ensure they outline all aspects of the business is run; this will help avoid establishing disputable gaps in the document.
Finally, the LLC should obtain an Employee Identification Number (EIN) from the Secretary of State. The EIN helps the IRS track an LLC’s financial activities. LLCs can apply for their EIN online to complete the application faster or submit the IRS Form SS-4 via mail.
Frequently Asked Questions
An Article of the Organization is not the same as an operating agreement. An Article of Organization is a document used to form an LLC with the Secretary of state. Operating agreements, on the other hand, are documents that outline how LLCs should be run.
Like most other states, North Carolina does not require an LLC to have an operating agreement to operate in the state. However, it is recommended that an operating agreement be formed to enable the LLC to benefit from the protections offered by the document.
Operating agreements are internal company documents; therefore, they do not need to be filed with the state. They should also be kept with other company documents. Each member of the LLC must have a copy of the operating agreement.
Yes, a single-member LLC should have an operating agreement. The operating agreement will help protect the LLC status of the company. It will also help the company owner to separate personal and business assets.
Yes, a company can write its operating agreement. Hiring a lawyer may be considered too expensive, especially if it is a new company. It is, however, recommended that a professional is consulted to ensure the operating agreement is compliant with state and federal laws.