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By The Wyoming LLC Attorney Team

Feb 27, 2024
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Free LLC Operating Agreement Template

How to Start an LLC

Every LLC needs a manual that dictates how the company operates in a wide variety of scenarios. An operating agreement is exactly that.

Whether your company is a single-member LLC or a company with dozens of employees, an operating agreement is a must. These handy documents establish basic information like who owns the LLC, what rules govern the LLC, and what are the duties and responsibilities of the LLC members.

Despite the importance of the document, many states don’t require an LLC to have an operating agreement. This leads to countless LLCs forming without an operating agreement in place, which opens the door to unexpected problems down the line.

Aside from their usually optional status, operating agreements are often overlooked because of how much work goes into them. That’s why we’ve created a free LLC operating agreement guideline that you can use to create an agreement that is personalized to your company.

In this article, we’ll explain the benefits of this document and walk you through the elements that comprise them as we discuss:

What Are the Benefits of an Operating Agreement?

Though they aren’t required to form an LLC in most states, an operating agreement is one of the most useful documents your company can create. Here are just a few of the benefits of drawing up an operating agreement:

  • Increases credibility for single-member LLCs: Many people create single-member LLCs for greater liability protection and tax purposes. Because these companies serve a limited function, single-member LLC owners often forgo creating an operating agreement. However, an operating agreement increases the credibility of the company, making it appear more like a serious enterprise rather than just a formality created to do business.
  • Reduces overall liability: Operating agreements clearly define the liabilities of members and the company. This reduces the likelihood of liability spilling over into your personal assets and cleanly separates you from your LLC.
  • Provides plans for removing members: No one plans to have to remove a member. But should the situation demand it, an operating agreement outlines terms for removing LLC members in an efficient manner.
  • Reduces misunderstandings: Operating agreements dictate individual liability and responsibilities. By referring to your operating agreement, you can clear up a wide variety of misunderstandings between LLC members.
  • Outlines how to dissolve the company: Dissolving an LLC is difficult at the best of times, especially when there are multiple members. An operating agreement outlines the proper process for dissolving the company, streamlining what is often stressful.

What Needs to Be Included in an Operating Agreement?

Article 1: Basic information

When creating an operating agreement, the first thing you need to include is the basic information about your company. This document should be created once you have all this information available in order to avoid confusion. The items for this portion of the document include:

  • LLC name
  • Articles of organization filing date and location
  • Duration of the LLC
  • Principal office address
  • Business purpose
  • Name and address of the registered agent

Article 2: Management and Voting

This section defines how the company is structured and how voting works. This includes determining:

  • Whether the LLC will be member-managed or manager-managed
    • LLCs can be managed by a voting group of members or by an appointed manager. If manager-managed, the manager’s authority and the process for removing them must be in this article.
  • How voting in the LLC works
    • Company voting policy dictates how members can vote on issues that require the group. You need to outline how voting rights are decided (for example, one vote per member or weighted votes in line with their capital contributions). The operating agreement must also specify if votes need to be unanimous or by majority.
  • Which issues go to a vote and which issues are left to the discretion of the manager, such as:
    • Amendments to the operating agreement
    • Mergers or dissolution
    • Adding new members
    • The sale or purchase of business assets

Article 3: Member Interest and Financial Contributions

This section outlines the members and how much each has contributed to the company. It’s extremely important to define the level of liability each member holds. The section includes the following information:

  • Named LLC members
  • Each member’s ownership interest
  • Which members made financial contributions to start the LLC, and how much they contributed
  • How to raise additional funding
    • By issuing membership units to existing members in exchange for additional financial contributions
    • By adding new members and issuing membership units to them in exchange for financial contributions

Article 4: Distributions

This section outlines how members receive money from the company or how funds are taken from them in the event of a shortfall.

  • Explain how profits and losses are shared among members
    • May include physical property, money, or other business assets
    • May be allocated to members based on ownership percentages
  • Specify that allocations and distributions need to account for outstanding debt and taxes owed by the company (important)

Article 5: Membership Changes

Over time, you may wish to add or remove members. This section of an operating agreement provides for that by creating rules regarding the following:

  • How new members can be added and how to remove existing members
  • If and when members can transfer ownership back to the company, and how that process is handled
  • What happens when a member dies or leaves the company

Article 6: Dissolution

Finally, the last article determines how you can dissolve the company if you need to. It includes the following information:

  • The circumstances in which it is appropriate to dissolve the company
  • Process for winding up the affairs of the company
  • If the company owns assets, this section dictates how those assets are distributed during the dissolution of the company

How to Change Your Operating Agreement in the Future

Once an operating agreement is created, it isn’t set in stone. Because operating agreements can be changed as needed, they are considered living documents. You can make amendments to the operating agreement that enable your company to make necessary changes that will help it adapt to shifting circumstances and needs.

Operating Agreement FAQs

To make a simple operating agreement for an LLC, utilize our free LLC operating agreement guideline using the information provided on this page. If you have any questions, our experienced business law attorneys are here to help.

Yes, you can create your own operating agreement using a template or by following the steps outlined in this article. However, it can help to have a business law attorney look over the document to highlight any pitfalls.

No, an operating agreement can be drawn up by any member of the LLC. It is useful to have a lawyer review the document and identify any issues.

No, most states do not require LLCs of any kind to have an operating agreement. However, even single-member LLCs benefit from the liability protections that an operating agreement can afford them.

No, an LLC operating agreement does not need to be notarized. It does need to be signed by all members of the LLC and submitted to the Secretary of State or other appropriate governing body in order to become active.

Do You Need Help Creating Your LLC Agreement? Call Wyoming LLC Attorney

An operating agreement is one of the most important documents for your LLC. A qualified business law attorney can help you draft your agreement or assist with fine-tuning an existing agreement that has become unwieldy over the years. At Wyoming LLC Attorney, we provide a standard Operating Agreement with every formation. You can arrange for an attorney consultation to assess your agreement or create a customized Operating Agreement for your business.

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If you need assistance forming your company, reach out to us using our online contact form or call +1 (307) 683-0983. Our dedicated paralegal team is here to help.