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One of the steps involved in forming your limited liability company (LLC) is to create an “Operating Agreement.” This agreement is a document that defines certain important aspects of your LLC like who the owners are, how profits will be shared, and who has the final sign-off of important business decisions.
You’ll normally write and sign your Operating Agreement when you initially start your LLC or very soon afterward. We can walk you through that initial creation of your agreement and we also provide a helpful service to get everything in place. You can get a customized Operating Agreement as part of our Gold or Platinum formation packages or as an add-on to our Silver package for a small additional fee.
This is perfect for when you’re first creating your LLC, but what if you want to make changes to your Operating Agreement after that? Don’t worry, we’ve got you covered.
What Are the Areas I Might Update in an LLC Operating Agreement?
An Operating Agreement defines several important facts about your business, including:
- Who owns the LLC, the structure of ownership and how much of the business each LLC member or manager owns
- How much money, or capital, the owners are contributing to the LLC to start it
- How the LLC is managed, the decision-making process for high-level decisions and how votes will be made, counted and managed
- The membership of the LLC, including if you add members to your LLC or if someone leaves the business
- How LLC assets (what it owns), profit (what it makes) or losses (what it loses) will be distributed between the owners
- The process for closing down and dissolving the LLC if that’s necessary
When Do I Need to Update the Operating Agreement?
You will need to update your LLC Operating Agreement if any of these areas changes significantly. For example:
- If new members or managers come into or leave the LLC
- If there’s more capital committed to the LLC or ownership stakes change
- If the high-level decision-making and voting processes are changing
- If there are changes to how profits, losses or assets are distributed to owners
- If your LLC ceases doing business
Must All LLCs Have an Updated Operating Agreement?
If you’ve formed an LLC in any of the following states, you must have an Operating Agreement that reflects the latest changes to your LLC: California, Delaware, Maine, Missouri, Nebraska and New York.
Even if you aren’t formally required to have an Operating Agreement, they can be extremely useful, so we recommend getting one in place. If other people own or manage the LLC alongside you, an Operating Agreement clarifies how the business will be managed.
If you’re the only owner of your LLC, an Operating Agreement lets you clearly define the various decision-making and other aspects of your business so you have a trusted reference document. An Operating Agreement will also increase the credibility of your LLC.
Can an LLC Operating Agreement Be Changed?
Yes. LLC owners can make changes to an Operating Agreement by mutual consent.
- One or more of the owners will propose some amendments to the agreement.
- These changes will be circulated and discussed by the owners of the LLC.
- Once everyone agrees to the proposed changes, you can draft a new Operating Agreement incorporating the amends.
- All owners will sign the updated Operating Agreement, and the new version becomes a governing document for the company.
You can use whatever process you wish to propose changes, agree amends, manage discussions, get an agreement and sign the updated document.
Do I Need to Use a Specific, Legal Process to Update the Operating Agreement?
There’s no external “mandate” on the process you should follow to update your LLC Operating Agreement. Essentially, you need to clearly discuss changes with other members or managers to get consent. Once that’s done, you update the agreement, get it signed and use it for future decisions. The process you choose to follow is up to you, and you can update your Operating Agreement whenever you think it’s necessary.
We would strongly recommend that you manage this process through a business attorney so they can ensure you’re following good practices. You do not need to file your Operating Agreement with the Secretary of State or other business formation agency in your state — even in states that require you to have an Operating Agreement. Instead, you should keep it with your internal records and use it when necessary.
Operating Agreement vs. Articles of Organization: What's the Difference?
It’s important to understand that your Operating Agreement and your Articles of Organization are very different documents, treated in different ways. We’ve already explained the Operating Agreement — let’s talk about the Articles of Organization.
Your Articles of Organization are the formal documents that you file with your state when you start your LLC. The document contains important legal information about the name and address of the LLC, the Registered Agent and some other details. If you need to change your Articles of Organization, there is a formal, legal process to do that, and you will need to file the updated document with your state. Bizee can help you file your amended articles.
We hope you’ve found this guide to updating your LLC Operating Agreement helpful. Remember that even if you're not legally required to have an agreement in your state, they can still be incredibly useful documents to ensure the smooth running of your LLC.
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