By Mark Pierce, Esq.
Every business entity needs an "instruction manual" that serves as a guide to how the business will be owned and operated. For a limited liability company (LLC), this instruction manual is called an “Operating Agreement.”
An operating agreement is a document written on behalf of the members of an LLC that establishes:
Operating agreements are only mandatory for LLCs in a few states and usually only for multi-member LLCs. Regardless, if an operating agreement is required, it doesn’t have to be filed with the Secretary of State.
While Wyoming doesn't require LLCs to have operating agreements, there are still many reasons for your Wyoming LLC to have one. Operating agreements provide single-member LLCs with credibility while strengthening the corporate veil that prevents creditors from reaching the members’ personal assets. For multi-member LLCs, in addition to providing asset protection and credibility, operating agreements can prevent misunderstandings among members because it provides clear rules and responsibilities and specifies how internal disputes are to be resolved.
Holding companies do not require any special type of operating agreement. However, the operating agreement should include and address terms and issues that are specific to the industry in which the holding company is being used. For example, a real estate holding company’s operating agreement may specify that the holding company’s funds can only be used to acquire real estate (as opposed to long-haul trucks) or that the managing member must also fulfill the role of property manager.
There are essentially 6 important sections or articles that your operating agreement should include:
A company's operating agreement should change and evolve as the business grows. Therefore, it is often thought of as a "living document". Amendments can be made to your operating agreement that will allow your holding company to make pivotal changes, rather than being locked into a very inflexible structure, so as long as the operating agreement allows for it.
A qualified business law attorney can assist you with drafting your operating agreement or with fine-tuning your existing operating agreement if it has become too complex or complicated. Call us today to arrange a consultation with an experienced Wyoming business law attorney.
A holding company needs an operating agreement to show who owns how much and to determine the rights and responsibilities of members and managers. Each subsidiary should have an agreement too.
A holding company and operating company are not the same. The first is meant to hold assets and investments, while the second operates and manages investments, assets and employees.
The operations of a holding company should be none. This is because operations are inherently risky and a holding company owns valuable assets that should be kept separate from liabilities.
A holding company is used to hold assets, but it should not manage them, have employees, or engage in operations because those actions bring liabilities that can threaten the assets.