By Mark Pierce, Esq.
A Limited Liability Company acts through its Members, Manager if any, or through agents properly appointed. It is important the person acting on behalf of the company has a clear role and is held accountable. The LLC operating agreement is a contract which delineate the obligations, rights and duties of members and managers. They are important, but not required for Wyoming LLCs.
Other service providers charge more for an operating agreement. We provide one free of charge if we form your Wyoming LLC. It is completed using your information and you receive it as an editable Word document format. It is ready to print, sign and take to the bank. This is just one of many advantages you receive by doing business with us in Wyoming.
A limited liability company's operating agreement is flexible in that the laws allows broad modifications to be made. Generally, an agreement is allowable so long as it neither violates the LLC Act nor is internally contradictory.
If you decide to draft an operating agreement, then it is important to ensure all members sign a copy. It does not have to be the same physical copy. They may be identical, but physically independent copies, which are signed. That is to say, each member may print and sign their own version without needing to mail a single draft back and forth.
Our LLC Attorney would be happy to draft a custom operating agreement. In such cases, the attorney represents the company and speaks with the members to ensure each has a proper understanding of their commitments. The cost is $350 per hour for any required consultations and the time required to draft the operating agreement.
What Could Go Wrong?
It is easy to dismiss an LLC's operating agreement as a bureaucratic hassle. This is incorrect thinking however. Having one ensures all parties understand their role and are protected in case of disagreement down the road. There are a few potential worst case outcomes from not having a signed agreement.
Imagine a real estate deal requiring an initial contribution from each member and a loan from the bank. A rental property loan may require one member's guarantee. If the property fails to perform as expected, then the LLC may not be able to make its payments. A proper operating agreement would ensure each party is required to make up their share of a shortfall. Not signing means the other partner could walk away from the deal leaving just one to hold the bag. If they were holding a signed operating agreement instead, then it would be a different story.
The agreement also makes clear what percentage each partner owns. Everyone is familiar with the Facebook story whereby the founders did not put anything into writing. It led to years of lawsuits and continued bad feelings. More practically, imagine a company where the owners did not agree on who owned what in writing. Combine this with years of unclassified contributions and withdrawals. At such a point proving anything to anyone would be difficult if your partner(s) become greedy.
A single member LLC is a company with one owner. For a single member LLC an operating agreement may seem superfluous. This is because it's simply an agreement between you and yourself if you are member managed. For such situations a complex agreement is not needed because the sole member does not require protections from other members.
There may be duties for a manager if the company is manager managed. Otherwise, the document is sparse and may be amended at any time given the sole owner doesn't need another member's consent.
We still provide an agreement in such cases for three primary reasons. An operating agreement can be seen as an important step towards engaging in corporate formalities. These are important as they breathe life into the company and allow you to enjoy benefits such as the corporate veil.
The second reason is because an LLC outside a trust is liable to be probated. We provide a section which allows you to name a beneficiary for your LLC interest in case you pass away. The third reason is because banks commonly ask for them as proof of ownership.
Multi-Member Limited Liability Companies
Multi-Member LLCs are simply those who have more than one owner. For such companies an LLC operating agreement is very important. This is because each member will have their responsibilities and share of ownership for the venture. Only by writing these things down, and having everyone sign, can you be certain they will uphold their end of the deal. A "handshake" deal has little chance of standing up in the court of law.
We provide the LLC's operating agreement in an editable format or our attorney can draft a customized agreement for you. As noted above every member of the company must sign a copy of the agreement. They may print and sign their own copy without mailing one around. We recommend uploading the signed copies to the online portal for safekeeping. This ensures there will always be a copy in the cloud for safekeeping in case of disagreement.
This distinction has to do with who operates the company's day-to-day affairs and has signing authority. Is it the members? Is there a professional manager? Sometimes one member is running the show and the other partners are silent. If all members are involved and there is no manager, then choose a member managed company.
When action is taken to sign a letter, contract, or check for the LLC, or when the name of any person is printed on a business card, you should make certain that the capacity of the individual signing or named, is clearly indicated. In virtually every case that person must be either be a Manager, all the Members or as otherwise agreed, or an authorized business agent. Agreements and other documents for the LLC should be signed in such a way as to identify the LLC, the signor, and their authority to sign for the entity. Do not sign in your individual capacity or you might acquire personal liability!
If you need to change, then a new agreement can be drafted. There are not fees or forms to file in Wyoming for operating agreement changes. The Secretary of State does not need to be notified.
If there is a manager or silent partners, then the correct choice is a manager managed company. This will allow just the named parties to handle operations. Generally, silent partners will not be liable for self-employment taxes on their share of the income. You should check with an accountant to see whether this would benefit you.
Wyoming LLC Agreement Summary
Drafting an operating agreement for a Wyoming LLC is an important step in forming your company. It shows you are obeying formalities and can assist with asset protection. It should be done before commencing business or committing any money. We have experienced that if clients don't sign their agreement within the first few weeks, then they won't do it at all. Use our portal for safekeeping and don't be fooled into thinking you can take care of tomorrow what should be done today. Learn more about our corporate services in Wyoming here and Wyoming limited liability company benefits here.