An Oregon LLC Operating Agreement is a legally binding contract that contains a company’s internal structures, policies, procedures, and operations.
Whether big or small, companies in Oregon must strive to have this document as it contains all the essential information required for better management of the company. An Oregon LLC operating agreement must be prepared according to the laws of the state and Articles of Organization.
The document is essential to companies in Oregon, in that; it provides an outline of all the regulations that must be observed by the company members. The Oregon LLC operating agreement also provides the management structure of the LLC. Members can choose to modify and make changes, which they have agreed upon, to the document.
Even though it is not a requirement, company members in Oregon can separate and protect their private assets from their business assets to avoid losses in case of litigation or bankruptcy affecting the company. Also, they can receive tax benefits and have an outline of the management and company operations, which guarantees uniform company operations.
The Oregon LLC operating agreement must be in line with the Oregon Limited Liability Company Act (Chapter 63), Operating Agreement Laws (§ 63.057), and State Definition (§ 63.001(25)), which are the supporting laws with LLCs.
A fee must be paid to register the company and complete the filing process for Oregon LLC operating agreement. For example, for filing an Oregon LLC and Oregon LLC annual report, the fee for each is $100.
Types of the Agreement
There are two different types of Oregon LLC operating agreements. These two differ based on the number of members who own and make decisions for the company.
Here are the two different types of Oregon LLC operating agreements:
Oregon Single Member LLC Operating Agreement Form
This document is used by companies with only one managing member as the company’s owner. This form offers extra protection of their assets from their business assets.
Download: Microsoft Word (.docx)
Oregon Multi-Member LLC Operating Agreement Form
This document is best used by businesses that have multi people as owners. For example, with a company with more than one managing member, this multi-member operating agreement will present all the required information.
Download: Microsoft Word (.docx)
Benefits of Agreement
Having an LLC operating agreement in Oregon is essential. Based on the importance of this document, LLC members should thrive on preparing and having an operating agreement.
Here are some of the benefits of having this document:
LLCs have the freedom to run their operations and implement their own company rules and regulations. In addition, there is more flexibility with an operating agreement as the members will decide on the company’s management structure, ownership structure, and even how profits will be distributed among its members.
LLC members already have some form of legal protection when dealing with issues affecting the company. However, members can have more legal protection with an operating agreement since they can separate themselves from the business and make it an entity on its own.
This way, in case of litigation or bankruptcy, members will not experience losses of their assets.
An operating agreement helps the company seem more legitimate to third parties like business partners, prospective investors, lenders, and banks. With this document, companies can easily open bank accounts, get loans, and even get more investors since these parties can see the company’s internal structure.
An operating agreement helps to prevent disagreements among its company members. It offers an outline of how to handle different issues that may arise in the company and can be used as a point of reference in case of disputes.
Issues to be Discussed
When preparing an Oregon LLC operating agreement, members should not be quick to fill the document with any kind of information.
This document is legally binding, and it is meant to provide an outline of the company’s operations. That is why; the document should contain all the issues that members have discussed and are unique to the company’s operations. All critical issues must be addressed in this document to avoid future disagreements or internal disputes among company members.
Some of the issues that must be discussed in the operating agreement include the management structure, the percentage of ownership or units given to each managing member, the contribution expected based on the units given, the level of restriction on transfer of units, and the methods to be used when resolving disagreements.
Other issues include the presence of officers in the LLC, situations that will require unanimous agreement from majority members, the possibility of expelling company members and the circumstances for such an outcome, members’ rights to the first refusal and first offer, members’ obligations to protect confidential information and tax payment method preferred by the company.
Information to be Included
For a comprehensive and valid operating agreement, some specific details must be found in the document. Your agreement will serve its purpose with these critical elements, and the company is bound to benefit significantly. Therefore, ensure that the document has all the required information before signing takes place.
Here is the information that must be included in the Oregon LLC operating agreement, whether you are using a template or forming your document:
Percentage of members’ ownership
The agreement must specify the percentage of ownership of each member who is an owner of the company. The names of the owners and their percentage of ownership must be well-written in the document. For example, the percentage might be equal or based on the capital investments by each member.
Voting rights and responsibilities
The agreement should specify the members’ voting rights and responsibilities. This includes the voting power each member has and the situations that will require voting. For example, ownership percentage may determine the voting power of each member. There should also be specifications about voting, like whether it should be a majority or a unanimous vote.
Duties of members and managers
Based on the ownership percentage, the LLC should specify the powers and duties of members and managers. Without such specifications, the laws in Oregon State suggest that all LLC members have equal management rights.
Highlighting the specific responsibilities of each member is essential as it helps with accountability. For management, the document should also specify whether the company will be a member or manager-managed.
Distribution of profits
Profit distribution among the company members is essential information that should be specified. Failure to specify the profit distribution as an Oregon LLC means that all members will automatically receive equal profits.
According to the document specifications, the profits can be split equally or based on the ownership percentage of each member. Allocating money is a sensitive topic, and that is why it is necessary to have specific information about profit distribution in the agreement.
LLCs should cover the purposes and schedules of their meetings in the operating agreement. This way, every member is aware of the meetings and the consequences if they fail to attend these meetings. The agreement can also specify the issues that might lead to holding meetings.
The document must also have details of the time, the place, and the number of times the meeting will take place. With such clear guidelines, the members will remember that the meetings are compulsory and will ensure they attend all the scheduled meetings.
Buyout and buy-sell rules
There should be rules in the agreement for leaving and new members that will ensure that such transitions are smooth. For example, there can be voting in the case of a new member joining in deciding on the capital investment they will have to make.
Existing members might want to retire, leave or become incapacitated. The agreement should specify what happens in such scenarios. The change of ownership and handling of such a member’s assets should be well known in the document. The agreement should also contain information about what to do in case of the death of an existing member.
To make forming an Oregon LLC operating agreement easier, we are providing free and downloadable templates. In addition, we have both single-member and multi-member Oregon LLC operating agreement templates for you.
With these free and easy-to-download templates, you can have a guide to prepare your Oregon LLC operating agreement. These templates will ensure that you have all the information required in the legally binding document before it is signed.
How to Form an Operating Agreement?
For an LLC in Oregon to form an operating agreement, there are steps that should be followed.
Before beginning the process of forming the LLC operating agreement, the members must go through the LLC records at the Secretary of State to confirm that their LLC name is unique. In case their LLC name is similar to any of the registered LLC names, the application will be rejected.
The name must be different from other names already used before by other LLCs.
Here is a step-by-step guide on how to form an LLC operating agreement in Oregon State:
An LLC should have a registered agent to handle all state filings and other related issues on their behalf. According to the Secretary of State, the registered agent must be a resident of Oregon State and qualify to do business in the state.
The registered agent should then select the entity type, domestic or foreign LLC, which suits the company and the preferred style of filing.
A domestic LLC is an entity from a new company in Oregon State, while a foreign LLC is from an existing company outside Oregon State. The filing can either be done online or through the mail. A Certificate of Existence is required for a foreign LLC.
A filing fee of $100 for a domestic LLC and $375 for a foreign LLC is required to complete the filing process. There will be a step for online filing where the agent will pay the fee before continuing with the filing process.
For mail, evidence of payment should be submitted to ‘Corporation Division’ alongside the other documents and sent to the following address
Secretary of State, Corporation Division, 255 Capitol St. NE, Suite 151, Salem, OR 97310-1327.
The next step is to draft the operating agreement, either a single-member or multi-member Oregon LLC operating agreement. The document is essential as it outlines all the internal operations and policies of a company.
The Employee Identification Number is the last step of the LLC process, and it is essential as it is a requirement by the IRS. In addition, it acts as the social security number for companies. With the EIN, the company can handle tax reports better, hire new employees, and even open bank accounts.
Frequently Asked Questions
An operating agreement is not a requirement for LLCs in Oregon. It is, however, wise for LLCs to have an Oregon LLC operating agreement to add more protection to their assets by separating them from the company’s assets.
A single-member LLC in Oregon also needs an operating agreement. Even though it is not a requirement, having this agreement helps prove the business’s legitimacy in the case of banks, investors, and other third parties.
You do not need a lawyer when preparing an LLC operating agreement in Oregon. However, it is okay to seek legal guidance from lawyers to ensure all the necessary information is included in the contract before signing the legally binding document.