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Setting an Asking PriceUsing a Business BrokerSelling a Business During DivorceSelling a Failing BusinessTransferring Intellectual PropertyPreparing an Online Business for SalePreparing for Sale, Two Years OutSelling a Business QuicklyWriting a Selling MemorandumSelling a Business Step by StepSelling a Business With DebtChanges Worth Making Before SellingLimited liability company · Draft for review
This Operating Agreement is made on by the persons named below (each a “Member”) in respect of (the “Company”), a limited liability company organised under the laws of .
The Company was formed on filing its articles of organisation with the State of . Its principal office is . The Company is formed to , and for any lawful activity reasonably incidental to it.
This Agreement governs the affairs of the Company and the relations among its Members, and displaces the default rules of the state limited liability company act to the extent that act permits.
| Member | Capital contribution | Units | Percentage |
|---|---|---|---|
| First Member | |||
| Second Member |
A capital account shall be maintained for each Member, credited with contributions and allocated profits, and debited with distributions and allocated losses. No Member is obliged to contribute further capital, and no Member may demand the return of their contribution except as this Agreement provides.
They are different numbers and the agreement should say so deliberately. Where one Member contributes materially more, the usual answers are a preferred return on the excess, a loan repaid before distributions, or units that reflect it. Choosing none of those means the funding Member subsidises the other for as long as the company exists.
Profits and losses shall be allocated among the Members in proportion to their Units, and each Member’s capital account shall be adjusted accordingly.
An allocation that does not follow capital must have substantial economic effect to be respected for tax, or the IRS reallocates according to the members’ interests and the arrangement you drafted simply does not apply. Special allocations are a conversation with a tax adviser, not a template.
Distributions shall be made at such times as the Members determine, in proportion to Units. The Company shall in any event distribute to each Member, no later than the fifteenth day of April, June, September and December, an amount sufficient to pay tax on that Member’s allocated share of profit at an assumed rate of .
An LLC taxed as a pass-through allocates profit to its members whether or not it distributes cash. A member allocated $200,000 who receives nothing still owes tax on $200,000 — out of their own pocket, on money they never saw.
It happens most often when the company is growing and needs the cash. This clause is what stops a good year from producing a personal tax bill nobody planned for.
The Company is member-managed. Each Member is an agent of the Company and may bind it in the ordinary course of its business.
Members vote in proportion to the Units each Member holds.
Member-managed means EVERY member can bind the company — sign a lease, take on debt, hire someone. That is workable with two working founders and alarming with six members, one of whom is a passive investor who has never run anything.
Notwithstanding clause 5, the following require the consent of Members holding a majority of the Units:
No Member may transfer any Units without the consent of the other Members. Any purported transfer in breach is void. A permitted transferee who is not admitted as a Member takes an economic interest only — a right to distributions, with no vote, no management rights and no access to the books.
A Member’s creditor, or an ex-spouse under a divorce decree, can end up holding their interest. This clause is what stops that person from voting on your business, and reduces them to a claim on distributions. Without it, they arrive with full rights.
A Member may withdraw on days’ written notice. On withdrawal, death or permanent disability, the Company shall purchase that Member’s Units at fair market value determined by an independent appraiser, payable over years with interest at a rate the Members set by written consent.
The Company’s obligation to purchase is subject to it remaining able to pay its debts as they fall due.
The Company shall maintain complete books at its principal office, open to each Member at any reasonable time, and shall maintain bank accounts, records and property separate from those of any Member.
Courts pierce the veil for commingling more than for anything else. Paying a personal expense from the company account is the single most damaging habit — not because of the amount, but because it is evidence the company was never really separate from you.
This Agreement is the entire agreement among the Members and supersedes all prior discussions. It may be amended only in writing signed by the Members required under clause 6, and is governed by the laws of .