What Has to be in an Operating Agreement? Understanding Series LLC, Ein and State Laws

Any Limited Liability Company (LLC) must have an operating agreement. It describes the duties of the members, establishes how earnings and losses will be distributed, and establishes the policies and procedures for the functioning of the LLC. It is generally preferable to have an operating agreement to avoid any misunderstandings and conflicts, even though it is not legally necessary in some jurisdictions. The fundamental components of an operating agreement will be covered in this article, along with some associated queries on state regulations, series LLCs, and EINs. What must be included in an Operating Agreement?

1. Company details: These include the LLC’s name, registered office address, and members’ names and addresses.

2. Management Structure: Whether the LLC will be controlled by members or by a manager should be specified in the operating agreement. All members of an LLC that is managed by its members have the power to decide on behalf of the business. In an LLC that is managed by a management, the members elect a manager to act on their behalf.

4. Distribution of earnings and Losses: The operating agreement should specify how members would split earnings and losses.

5. Voting Rights: The operating agreement needs to outline the procedures for voting on significant decisions, like admitting new members or changing the operating agreement. 6. Dissolution: If necessary, the operating agreement should specify how the LLC will be disbanded.

An LLC that can generate many “series” that can function as independent legal entities with their own assets and liabilities is known as a series LLC. Each series may have its own participants, managers, and commercial activities. A traditional LLC, on the other hand, consists of a single business and cannot produce distinct series. Which states permit Series LLC?

At the moment, 17 states—Alabama, Delaware, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, Wisconsin, and Wyoming—allow the formation of series LLCs.

If a series of an LLC does not have workers or pay taxes, the series does not require its own EIN (Employer Identification Number). The series will require its own EIN if it employs workers or must file tax returns.

By submitting an amendment to the state, an LLC can be converted to a series LLC. To make sure that the procedure is carried out appropriately and that all legal requirements are completed, it is crucial to seek legal advice.

In summary, an operating agreement is a crucial document for any LLC and should contain crucial information about the business, its management structure, capital contributions, profit-and-loss distribution, voting rights, and dissolution clauses. Only a few states permit the formation of series LLCs, a type of LLC that enables the creation of many series that function independently. Depending on how the LLC operates, each series may or may not require a separate EIN. Finally, it is conceivable to convert an LLC into a series LLC, but you should seek legal counsel to ensure that you do it in accordance with state regulations.