It is important for all LLCs, from the solely owned LLC owning a single property or home based business to the multi-member sophisticated LLC formed for a much more complex purpose, to have an operating agreement. This sample operating agreement is for a Delaware LLC and is particularly appropriate for family limited liability companies or other LLCs formed mainly for estate planning purposes or as part of an asset protection strategy. For example, it provides for the issuance of voting capital and allows for the issuance of nonvoting capital. Using nonvoting capital can be a major component in the family LLC. The sample agreement also provides that members who hold only nonvoting capital have no right to vote as members or to participate as managers. This eliminates control issues involving junior family members and may increase the estate tax savings. (Note - While these provisions may be appropriate for family LLCs, they may not be appropriate for other LLCs where all the members may want to participate in management.)
Comprehensive management and flexibility in the sample agreement
The sample agreement provides that the voting members also manage the LLC. (Again, this may not be appropriate for all LLCs.) This can eliminate questions of authority between members and managers, and the potential that transactions may be authorized by the wrong group, and thus unauthorized. The sample agreement does not provide for regular meetings but instead allows the voting members to act informally in managing the business.
Flexibility is built into the document elsewhere. For example, the sample agreement allows for the voting members to appoint officers to manage the business but allows the voting members to control these issues outside of the agreement.
The sample agreement also provides for mediation and arbitration of disputes, and for reimbursement of attorney's fees and related costs to the prevailing party. The sample agreement also incorporates buy/sell provisions, which control a member's resignation, retirement or transfer of an interest. A member may voluntarily withdraw, but only after one year. (This strategy may not be appropriate for all LLCs and legal advice should be obtained before deciding whether these provisions should be provided in the operating agreement.)
Special features of the agreement:
The sample operating agreement includes sections on the following:
- organization, membership interests, capital accounts and management
- identification of the officers and agents of the company, and how meetings and votes are conducted
- allocations and distributions of profits and losses
- transfers or assignments of interests
- accounting and recordkeeping
- dissolution and closing down operations
- exculpation and indemnification
- mediation and arbitration of disputes
Download Sample Operating Agreement Here →
Considerations for adoption and customization
Extreme caution should be exercised before this sample agreement is adopted for actual use. This sample operating agreement is intended as a guide only, to be adapted to the particular circumstances of the business and the owner and the legal jurisdiction. The advice of counsel in determining what provisions are appropriate may be advisable.
As noted, this sample agreement is particularly appropriate for family LLCs or other LLCs formed as part of an asset protection strategy. It is based on Delaware law. Certain provisions may not be permissible in all states or appropriate for many LLCs. For example:
- The sample agreement generally requires the unanimous approval of the voting members. However, in some LLCs, a majority or supermajority vote may be desired.
- Paragraph 6.4 of the sample agreement, which governs involuntary transfers, may only be appropriate in a family LLC.
- The sample agreement provides that voting rights are proportional to the ownership interests in voting capital. It might be desirable, in certain cases, to provide that voting rights are per capita (one vote per voting member).
- The sample agreement allows for the voluntary withdrawal of a member after one year (subject to the buy/sell provisions). However, in some LLCs the members may wish to provide that a voluntary withdrawal of a member is a violation in any year.
And those are just some of the ways this sample agreement can be modified to meet the goals and interests of each particular LLC and its owners.
Reminder – We suggest that this sample operating agreement not be used before an attorney reviews it and adapts it to the particular circumstances of the business, the owner and the legal jurisdiction.
