- Company Formation
- Allocations and Distribution of Profits and Losses
- Voting, Management, and Operations
- Records and Bookkeeping
- Capital Contribution
- Membership Changes or Transfers
- Dissolution
- Periodic meetings
- Check signing
- Amendments
- Miscellaneous
LLC Operating Agreements: The Basics
In this section, we’ve provided a detailed explanation of all the basics that go into an Operating Agreement. When you’re ready to form your LLC, hire us and we’ll include a basic Operating Agreement free of charge!
What is an Operating Agreement?
In short, an Operating Agreement is a written legal document that defines and outlines the rules and member duties authorized by an LLC to provide a framework for an LLC’s operation and management.
More specifically, an Operating Agreement behaves as a legal contract that binds the members and managers to its terms, signed by all the members. An LLC’s Operating Agreement becomes the governing document for all of the company’s processes, activities, and decisions. The guidelines established by the Operating Agreement are tailored to fit the needs of the members and owners. An Operating Agreement is to an LLC what Bylaws are to a corporation, or what a Partnership Agreement is to a partnership. Think of an Operating Agreement as your LLC’s user manual.
Why is an Operating Agreement Important?
There’s a seemingly endless amount of invaluable reasons behind the importance of an Operating Agreement:
- Protect your company’s legal limited liability status.
Arguably the top reason to form an LLC is to have protection (or a “corporate veil”) over personal finances and assets if a lawsuit arises. Keeping your business and personal life separate is required to maintain this protection, and an Operating Agreement helps demonstrate that separate existence of your LLC from your personal life. Your Operating Agreement guards your LLC against courts that attempt to lift or “pierce” the corporate veil, where the courts can put limited liability aside and hold the owners and members financially and legally liable. While an Operating Agreement isn’t a make-or-break deal for maintaining limited liability, it is proven to help nonetheless. - Prevent misunderstandings and provide clarity during disputes.
Having an Operating Agreement to clarify a contentious situation can save you an enormous amount of time, money, and sanity. Conversational miscommunications, whether verbal, over email, or otherwise, about business procedures or member duties are inevitable. Whether it’s about a change in ownership, specific member duties, or anything in between, it can be covered in the Operating Agreement and save you from future headaches and legal fees. - Take control and override default LLC state statutory provisions.
When you create an Operating Agreement, you’re taking more control over your business affairs instead of letting the Nevada state statutes dictate your affairs. An Operating Agreement overrides the default rules put in place by the state of Nevada for LLCs who don’t adopt an Operating Agreement. The Nevada LLC state statutes are boilerplate language, and typically aren’t specific enough to meet the needs of individual LLCs. - Set a path & provide organization to the business.
Structure and organization is set out in an LLC Operating Agreement, providing a clear path for all managers and members of the LLC. All business-related discussions and proceedings will flow smoothly and predictably when everyone follows the same path with the same organization towards the common goal. - Spell out complex ownership agreements.
Many LLCs have unique ownership agreements that will involve negotiations and special implications. An Operating Agreement is where a business owner can spell out each and every detail of the complexities within the ownership agreement. Whether the ownership is divided by percentages or by membership units (similar to shares of stock in a corporation), you can outline it all in the Operating Agreement. - Give credibility to banks and lenders looking to do business with you.
It’s common for banks and lenders to request to see an LLC’s Operating Agreement before doing business with the LLC. An Operating Agreement brings formality to your business and shows that your business is a real, properly-established business. Before a bank or a lender is willing to hand over money, they’ll want to make sure you’re a legitimate LLC (plus it may be their policy to only work with LLCs that have an established Operating Agreement). - Help professionals work more efficiently with you.
Operating Agreements help more than just their LLC—they are helpful to plenty of other professionals your business will eventually encounter. Accountants and tax professionals can help you most efficiently with your financial needs when an Operating Agreement is involved, just as lawyers would with their legal advice for your business.
Should All Types of LLCs Have an Operating Agreement?
In our opinion—yes. All LLCs should have an Operating Agreement.
No matter the LLC type, number of owners, or management style, all LLCs should adopt an Operating Agreement. There’s a common misconception that only certain multi-member LLCs should have an Operating Agreement, but that’s just not true—any LLC can benefit from a majority of the reasons listed above .
Are Operating Agreements Living Documents?
Yes. Operating Agreements are living documents. Your Operating Agreement can and should be a working document that changes and grows as your business changes and grows. The Operating Agreement serves as a practical, fluid document that’s meant to undergo changes and additions, which can be done at any time and with the approval of all the LLC members.
Should I Have my Operating Agreement Reviewed by a Lawyer?
Yes—it’s a great idea to do so, especially when you want a customized Operating Agreement. We recommend either creating your Operating Agreement with the legal help of a lawyer, or at the very least, have a lawyer review your Operating Agreement after you’ve written it.
With flexibility comes complications, and since your LLC is one of the most simple and flexible business structures, it’s important to lay a strong legal foundation to protect you from common complications that can arise.
Difference between Articles of Organization & Operating Agreement
The Articles of Organization and Operating Agreement are two almost completely different documents, sharing only a few similarities.
The Articles of Organization is filed with the state or similar governing body, and legally creates and registers your LLC. These articles have your company’s basic information, such as names, addresses, and registered agent information.
The Operating Agreement isn’t filed with the state, and is meant to be kept with your company’s other important records. This agreement contains your company’s basic information found on the Articles of Organization, as well as all the rules and member duties for the framework and operation of your LLC
Nevada LLC Operating Agreements:
How it Works in Nevada
We’ve dug through the Nevada state statutes on Operating Agreements in Nevada, and have provided the detailed section below to answer specific questions for your Nevada Operating Agreement. Hire us and we’ll provide a free basic Operating Agreement after you sign up!
Are Operating Agreements Legally Required in Nevada?
No, Operating Agreements are not legally required in Nevada.
According to the Nevada Revised Statutes (NRS) 86.286 Operating Agreement clause, “A limited-liability company may, but is not required to, adopt an operating agreement.”
Some states require either all LLCs or just MMLLCs to have an Operating Agreement, usually at their principal office of business or just with the other business records (no state requires LLCs to file their Operating Agreement with the state). These states that require LLCs to have an Operating Agreement currently include the following:
- California
- Delaware
- Maine
- Missouri
- New York
When Should I Make my Nevada Operating Agreement?
According to the Nevada state statutes, your LLC can adopt an Operating Agreement “before, after or at the time of the filing of the Articles of Organization,” and you can choose to have the Operating Agreement go into effect either at the time of the company’s formation, or at a later date that can be specified in the Operating Agreement.
How do I Amend my Nevada Operating Agreement?
Amending or revising your Operating Agreement can be done at any time, and only requires a few steps:
- Have all the members vote and approve the amendment.
- Document it in writing, and have all the members sign the amendment.
- Keep the amendment with the original Operating Agreement.
The Operating Agreement itself can have a provision regarding the method to amend your Operating Agreement, as well. This means you may not have to have 100% approval vote to make amendments, depending on what you and your members decided on previously.
Do All Members Need to Agree & Sign an Operating Agreement in Nevada?
Yes. Your Nevada Operating Agreement isn’t officially adopted into your LLC until a unanimous written vote or consent of the members happen (or by the sole member) and all the signatures are in place at the bottom of the Operating Agreement.
Could I Use an Operating Agreement from a Nevada LLC similar to my LLC?
Technically you could, but we highly recommend against this practice. Using an Operating Agreement designed for someone else almost entirely defeats the purpose in creating one in the first place.
Having your LLC’s Operating Agreement tailored to fit your LLC will address your specific and unique business needs, even if you only require a semi-customized Operating Agreement.
Does Nevada Make Operating Agreements Public Record?
No. Operating Agreements are not made public record in Nevada (or even in any state that legally requires an Operating Agreement).
Since an LLCs Operating Agreement is not filed with the state, all the information can stay totally private, and out of the public eye. An Operating Agreement is considered an “internal” document.
What Other Nevada Agencies May Need to See My Operating Agreement?
Certain agencies or professionals may need or want to see your LLC’s Operating Agreement when doing business with you, including:
When you set up your Operating Agreement, ask a lawyer about creating a short form agreement, which can leave out the confidential details of your Operating Agreement, while showing banks and lenders that you still have a real, established Operating Agreement.
Does the State of Nevada provide an Operating Agreement Creation Tool?
Yes, on the SilverFlume business portal on the Nevada Secretary of State website, you can find a digital Operating Agreement tool to help you create your own customized Operating Agreement for free.
When you hire us to form your LLC, we provide a basic Operating Agreement free of charge!
What to Include in your Nevada LLC Operating Agreement
When you’re ready to write your Operating Agreement, use our section below as a guideline.
- Introduction: Company Formation
- Allocations and Distribution of Profits and Losses
- Voting, Management, and Operations
- Records and Bookkeeping
- Capital Contribution
- Membership Changes or Transfers
- Dissolution
Basic Items
Keep in mind that every LLC is unique, and there is no one-size-fits-all as far as Operating Agreements go, and these items are meant to be a reference or starting point before you customize your Operating Agreement.
- Introduction: Company Formation
This section states the basic information about your company and company formation, which can include but is not limited to:- legal and fictitious company names.
- member names.
- principal business address.
- Nevada registered agent (we recommend Nevada Registered Agent LLC ) name and address.
- location of key LLC documents, such as the Operating Agreement.
- effective date of Operating Agreement.
- purpose, such as the industry, service, or nature of the business.
- statement of intent, which affirms the business is formed under state law and will conduct lawful business.
- definitions of defined terms, such as book value, fiscal year, etc.
- Allocations and Distribution of Profits and Losses
LLCs allow for flexibility on splitting up the distribution of business profits and losses. It’s common for LLCs to distribute profits and losses among members based on ownership percentage, although you can decide on a different arrangement that best meets your needs. In this section, provide a detailed explanation of how your LLC will distribute its profits and losses to its members. For example, if one member has contributed more funds, but a different member contributes more labor hours for the company, their ownership percentages can reflect this–just provide the detailed explanation of that arrangement here. - Voting, Management, and Operations
Whether you have a member-managed or manager-managed LLC, use this section to spell out the management structure for your LLC. You may choose to have members vote on managers, and then assign the managers specific responsibilities, or have the powers and duties of the LLC belong to the members. - Records and Bookkeeping
This section provides information about how the LLC will keep its books and records. All books and records regarding finances or affairs are typically kept by the LLC managers or a designated member, and are located at the principal place of business. - Capital Contribution
Capital contribution is money or assets given to the LLC initially in exchange for LLC membership interest (ownership investment). This section contains a few different provisions:- The values of capital contribution made by each member to the LLC, whether by funds or assets.
- Whether or not the members will be required to make further capital contributions later on.
- How much a member’s interest percentage will grow if capital contributions are provided later on.
- The method of raising additional capital that may be required in the future.
- Membership Changes or Transfers
Down the road, you’ll eventually need to deal with things like membership interest changes and transfers when a members leaves the company (whether by choice, or due to a death, bankruptcy, divorce, etc). For this section, you can protect that membership interest by giving the other LLC members the first opportunity to buy the interest over non-members. The other members can either purchase the interest, or can unanimously approve the transfer of that interest to a third party or non-member. - Dissolution
The steps to take during the dissolution, or “wind-down,” of the LLC should be outlined in this section. Usually, the members make an official, unanimous vote to dissolve the LLC. The debts owed to the LLC’s creditors must be paid out before the members get their interest distribution or assets. The designated manager or member will need to file the appropriate dissolution forms with the Nevada Secretary of State.
Optional Items (When Applicable)
While it’s not possible to list every optional item that can be included on an Operating Agreement, we can help give you some ideas. A lawyer can assist you in deciding specific additional details to include based on the nature and industry of your LLC.
- Regular meetings
- Communication methods
- Check signing
- Agreement exceptions
- Handling of disputes
Hire Nevada Registered Agent LLC
At Nevada Registered Agent LLC, we’re happy to share as much of our experience and knowledge as possible with our clients. We’re not a huge company, but we have the resources in place to make sure we stay at the top of our game, including a free basic Operating Agreement when you sign up to use our incorporation service. We respect and enjoy our work and our clients. We can offer you a bevy of resources that our competitors can’t. Sign up with us today to start your Nevada business or hire us as your Nevada registered agent!
