A Virginia LLC Operating Agreement is an official document used by LLC entities to outline the rules and procedures of running the entity and the owner’s expectations (s).
Its contents are determined and prepared by the members collectively, and as a result, it becomes legally binding to each LLC member.
Other details included in the document are the roles and responsibilities of each member and manager, conflict resolution policies, and how decisions are made in the company. A Virginia LLC operating protects the company from being subjected to the default LLC state laws of Virginia.
An operating agreement is primarily an internal legal document; however, it is not required by law in Virginia. The execution of a Virginia LLC operating agreement is subject to the following laws:
Virginia Limited Liability Company Act: Title 13.1, Chapter 12
Operating Agreement Laws: § 13.1-1023
Definition: § 13.1-1002
Costs for Virginia LLC
The costs associated with filing an LLC in Virginia are an initial filing fee of $100 and an annual fee of $50.
Types of Operating Agreement
LLC businesses in Virginia can use one of the two types of LLC operating agreements depending on the LLC entity at hand. The types are:
Single-member LLC operating agreement
A single-member type of LLC operating agreement is used by LLC companies owned by one person or member.
Download: Microsoft Word (.docx)
Multi-member LLC operating agreement
LLC entities with more than one member/owner use a multi-member type of LLC operating agreement to set their guiding policies and rules.
Download: Microsoft Word (.docx)
Importance of Operating Agreement
Though not a state requirement, the benefits of having an operating agreement outweigh the work hassle involved in creating one. Below are various reasons why a Virginia LLC should consider crafting its operating agreement:
Recommendation of state
Under the Code of Virginia Section 13.1-1023, the state of Virginia recommends using an operating agreement as it streamlines the running of the business and allows members or owners of an LLC company to have more autonomy in running their company.
Protection of LL status
Having an operating agreement strengthens the company’s separation from the assets of the owner(s). This way, the limited liability status is given an extra layer, and the owner(s) and their assets are protected in case of litigation or bankruptcy of the entity.
With an operating agreement in place, it makes it easier for court officials to honor the company’s limited liability status. An operating agreement also enhances the LLC’s credibility to external parties such as investors and creditors.
Verbal agreement clarification
An operating agreement is an opportunity for members of an LLC to put all their verbal agreements in writing. Written agreements are more enforceable and held up better in court as there is no confusion on what was agreed on.
Protection of agreement
LLC protects the operating agreements made between LLC members such that default Virginia state laws on LLCs cannot be used to govern how the business should be run. This is because state laws are generic and will often fail to meet specific expectations of the company owners.
Since a Virginia LLC operating agreement is based on the LLC members’ expectations, they are free to determine how multiple aspects of the business are carried out. Putting all agreed-upon aspects in writing helps mitigate potential confusion and conflicts regarding how the LLC should handle certain situations. All this is achieved without external influence.
Open business account
External parties such as banks and creditors use an operating agreement to authenticate an LLC status of an LC company. LLC companies can therefore use the document to open their business accounts and apply for loans.
Right mindset for business
Through an operating agreement, LLC members can plan how the company will achieve its goals. By having all members abide by the agreement, they can focus and have the right motivation towards the company’s success.
Mitigation of conflicts within a business is essential for its success. Having all the governing rules and protocols in writing ensures there are no misunderstandings between LLC members. Each member is assigned their roles and responsibilities; thus, there are no crossovers in terms of execution of duties.
Information to be Included
A Virginia LLC operating agreement needs to be as detailed as possible. It should try to capture all daily operations and probable scenarios that influence vital activities within the business. This article has provided the main items that would typically appear on a standard Virginia LLC operating agreement:
The official registered business name of the LLC entity must appear in the document. The LLC name should be presented exactly as written in the Articles of organization, down to the spelling and punctuations. In addition, the name must contain the designator “LLC” or “Limited Liability Company.” Inserting an LLC name ensures the document can be legally bound to the company.
The Virginia LLC operating agreements also list all the members’ names, contact details, and the ownership percentage held by each member. Ownership is divided based on capital contribution or other factors identified by the members.
Different LLCs in Virginia will have different management structures that satisfactorily meet the owners’ objectives. The LLC can have either of the two management structures; member-managed or manager-managed.
In a member-managed LLC, the owners are responsible for overseeing the company’s day-to-day operations, whereas, in a manager-managed, the members have to appoint or hire a manager from within themselves or outside the LLC. The adopted management structure must be declared in the operating agreement, and the associated responsibilities of each member or manager defined.
Duties of members
All members and managers in an LLC company will typically have distinct roles and responsibilities ranging from day-to-day operations to strategic decision-making. Therefore, the roles of each member and manager need to be clarified in the operating agreement.
Voting rights and responsibilities
Voting is one responsibility that all members share. The operating agreement should state how the voting rights are distributed among LLC members and other voting details, such as the voting margins needed to decide on various issues. Votes can be shared equally or based on ownership percentage.
An LLC operating agreement must indicate how much funding each LLC member contributed towards starting up the company. Procedures to be used in future fundraising are also defined in the operating agreement.
Members of an LLC should anticipate profits and losses. The operating agreement should declare how the profits and losses are to be distributed among members. This can be evenly shared or as agreed on by the members.
An operating agreement ought to declare the procedure for meetings within the LLC company. Meetings are essential for status reports and decision-making. The schedule to be followed in holding periodic meetings should be included in the operating agreement. Events that would prompt meetings to be held can also be listed in the document.
The document can outline how additional meetings such as emergency meetings should be conducted in terms of notification methods, attendance requirements, and any other details. This can be useful in assessing members’ accountability in fulfilling their assigned responsibilities.
Buyout and buy-sell rules
An LLC should have protocols for scenarios where a member wants to leave the company, or an additional member wants to join. These protocols need to be outlined in the Virginia LLC operating agreement. For example, vacating members will have to give up their ownership for compensation of a certain amount.
The addition of new members will often have to be decided through a vote and a specified amount of money. Again, these details need to be captured in the operating agreement.
A Virginia LLC operating agreement can address how the ownership percentage can be transferred to another member or heir if the member passes away. It should be clear who can inherit a member’s ownership and the rights they would assume after the succession.
Dissolution is the termination of an entity. The procedure for dissolving a Virginia LLC can be defined in the operating agreement. Dissolution details to be outlined are the division of assets, how the decision to dissolve the company will be made, and who will be responsible for filing the Articles of Cancellation – which costs $25 in Virginia.
LLC members should plan for making amendments to the Virginia LLC operating agreement for whatever unforeseen reason. A well-defined modification procedure that states events that would prompt a modification, the vote percentage required to adopt the change, and the member designated to modify the agreement should be included.
A severability clause can be included in a Virginia LLC operating agreement. A severability clause declares that if part of the agreement is unenforceable due to incorrect, legally unenforceable, or missing information.
It does not prevent other sections of the agreement from being legally enforced. Since an operating agreement is a legal document, this provision is essential to ensure the document remains legally valid even when it contains slight errors.
How to Form Operating Agreement?
A Virginia LLC operating agreement is formed after an LLC entity has been registered with the secretary of state. Therefore, the company should already have a business name that another company is not using. The following steps can then be carried out.
Find registered agent
First and foremost, the Virginia LLC members must appoint a registered agent with a physical Virginia address to represent the company in the state. A registered agent is needed to receive legal documentation and government correspondence on behalf of the LLC.
The registered agent or statutory agent can be an LLC member or manager residing in Virginia, a Virginia State member with residence in Virginia, or a business authorized to operate in Virginia.
Select type of LLC
The LLC member should then register the company with the State clerk as either a domestic LLC or a foreign LLC. Domestic LLCs are usually new or start-ups, whereas foreign LLCs are usually expansions of existing companies established outside Virginia.
Applications for foreign LLCs must have a copy of the original Articles of the Organization not older than 12 months and any other applicable amendments or corrections if any.
Next, a filing fee of $100 should be paid to the State Corporation Commission to finalize the application process. Online payments will typically require the applicant to have a credit card.
This can be carried out online or via mail. Applications made via mail are sent to:
The Clerk of the State Corporation Commission, PO Box 1197, Richmond, Virginia 23218-1197
Once the application is successful, the Virginia LLC operating agreement can then be prepared and signed. Again, the document can be prepared with the help of a lawyer to ensure all the relevant legal details are captured. A Virginia LLC operating agreement is compulsory by law; however, LLCs are advised to prepare one.
The LLC members can include any details they deem necessary to operate the company from member duties, financial distributions, rules, and regulations to voting rights of each member.
Finally, an Employer Identification Number for the LLC can be obtained. An EIN is used for tax purposes, opening a bank account, and paying employees.
Operating Agreement Template
The use of a Virginia LLC operating template is every day when preparing operating agreements. Templates act as a roadmap by outlining the fundamental details that need to appear in the LLC operating agreement. Accordingly, we have provided our readers with professionally formatted Virginia LLC operating agreement templates of both single-member and multi-member types that users can download and personalize for FREE!
Frequently Asked Questions
Having an operating agreement is encouraged for Virginia LLCs through the Virginia Statutes § 13.1-1023. However, it is not a state requirement, and LLC companies can choose to use this or not.
LLC operating agreements can be prepared by the LLC members from scratch, Virginia LLC operating agreement templates, or lawyers. Regardless of how the document is prepared, it becomes valid once all the members sign.
It is advised that the operating agreement be prepared before the LLC formation process is completed. It can therefore be crafted before filing the Articles of Organization or opening the company’s bank account. Banks will normally require the operating agreement to be presented.
No. An operating agreement is an internal regulatory document used to declare how an LLC is managed. In contrast, the Articles of the Organization is a registration document outlining details about an LLC being formed and is required by the Virginia State Corporation Commission.