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A multi-member LLC operating agreement is a legal contract that outlines the agreed-upon ownership structure and sets forth the governing terms for a multi-member LLC. In addition, it sets clear expectations about each member’s powers, roles, and responsibilities. It also allows for the setting out clear financial and working relations between the members and the business managers.
The contents and form of an LLC operating agreement will vary widely from one company. Still, most will have these key sections: basic entity details, organization, and voting, management, capital contribution, membership changes, distribution, dissolution. In addition, this contract clearly determines ownership stakes outlines the voting rights and how decisions are made, amongst other structural features of the LLC.
A multi-member LLC also referred to as a MMLLC, is a limited liability company with two or more members. The LLC operates as a legal entity separate from its members, so members have protection from the LLC's risks and debts liability.
Members of MMLLCs can be individuals, corporations, or even other LLCs. An operating agreement is a primary document that governs a limited liability company (LLC). However, an operating agreement is not required by all states for LLCs. Some states, such as California, do not require LLCs to have an operating agreement, although it is still recommended to have one. There needs to be an LLC operating agreement to establish clear processes and communication required to keep everyone in the LLC on the same page and prevent misunderstandings in doing business.
LLCs are pretty popular for these three reasons:
Though multi-member LLCs offer flexible setup and elections for taxation, the default tax classification for multi-member LLCs is partnership taxation. LLCs can also elect to be taxed as an S corporation or C corporation by filing the appropriate forms with the IRS.
Meet some lawyers on our platformOperating agreements are tailored as per a company's specific needs. However, these articles are a must-have for every LLC:
This section deals with the formation of the company. It will have information on when the LLC is created, a list of members, and an ownership structure. In addition, it will outline if the members have equal or different amounts of ownership. It performs four major functions:
The section covers each member's initial capital contribution in starting the LLC, be it in the form of cash or other assets. Here, you enter the total value of the contributions and note whether members are obligated to contribute more capital later on.
The section addresses the issue of managing the company and how each member will vote. The company can be member-managed or manager-managed, with a clear system on appointing managers and how individual members will be assigned other specific duties. In a manager-managed LLC, the members appoint a manager or managers to handle the day-to-day operations of the business, and the members retain the power to make major decisions.
However, all LLC members still retain the authority to make LLC decisions, with any legally binding agreement signed by all members. The agreement also outlines the consequences of any member failing to perform their duties. Finally, the article notes that members aren’t liable for LLC’s losses, damages, or expenses, and other actions against the LLC as long as they are acting in good faith.
The members may choose to make the LLC decisions through a voting process. The operating agreement will specify how votes are allocated, with the majority vote deciding disputes. The agreement will also specify the number of votes required for particular actions.
The section sets up the annual determination of gains and losses, outlining if the distributions are annual or more often. It also provides how profits and losses made by the LLC are shared per each member's ownership percentage, which might be in the form of a physical asset, money, or other business assets. Finally, the section defines how the company is liquidated and distributions per Treasury Regulations.
The section covers removing or adding new members to the LLC. It states if and when members of the LLC can transfer their ownership in the company. It will specify what happens in the event of death, bankruptcy, or divorce.
The section covers three key issues:
Article VI: Dissolution
The section of the operating agreement explains the circumstances under which the LLC may be dissolved and covers the process of terminating the LLC should all the members vote to end it. The article also notes that the LLC pays all its debts before making distributions to members upon dissolution.
An LLC is a serious business venture, but forming one isn’t a highly complex endeavor. Below are five steps to follow when creating a multi-member LLC.
There are two options for the management structure of an LLC. In writing up your LLC operating agreement, you must indicate which structure you will be using. These are:
Most states will require that LLCs, both multi-member and single-member LLC, have an operating agreement in place. However, even if your state doesn’t have an operating agreement as a legal requirement, it is highly recommended that every multi-member LLC has one created as soon as the LLC is formed.
LLCs are increasingly becoming one of the top structures that even sole business owners opt for. A sole business owner can create a single-member LLC operating agreement (Single Member LLC) as a way of safeguarding their limited liability status and ensuring that the courts uphold it.
Yes, you can write up an operating agreement for your LLC as long as you are thorough, cover all the details, and craft a document that can stand up in court. However, LLC operating agreements have vital information crucial in settling legal disputes should they arise, which is why consulting a business lawyer when crafting one is always a wise decision.
All that is needed is to sit down with all the co-owners and a lawyer, answer a few simple questions, and then figure out what else needs to be covered in the agreement. When all the co-owners agree with the contents and append their signatures, the document becomes a legal LLC operating agreement. If you are a single-owner LLC, you don't need a lawyer to write your operating agreement and start your business.
Q: How is a multi-member Limited Liability Company taxed?
A: By default, multi-member LLCs are classified and taxed as partnerships; they don't have a tax class of their own. Income from the entity is apportioned to the members, who are then expected to pay their fair share of taxes as per their ownership in the company. Should the LLC opt to pay its taxes either as an S corporation or C corporation, it must first file Form 2553 with the Internal Revenue Service (IRS).
Q: How many members form a multi-member LLC entity?
A: If the LLC keeps its original tax designation as a partnership, there is no limit to its number of employees. However, if the LLC changes its designation and is taxed as an S-corporation, its maximum number of members is 100.
Q: What rules should be upheld when naming an LLC?
A: Generally, two rules need to be upheld when naming an LLC. These are:
A: An LLC subscription agreement is a formal agreement between a limited liability company and an investor where the investor is looking to invest/subscribe to the LLC in the form of buying the company's shares at an agreed-upon price.
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Steven Stark has more than 35 years of experience in business and commercial law representing start-ups as well as large and small companies spanning a wide variety of industries. Steven has provided winning strategies, valuable advice, and highly effective counsel on legal issues in the areas of Business Entity Formation and Organization, Drafting Key Business Contracts, Trademark and Copyright Registration, Independent Contractor Relationships, and Website Compliance, including Terms and Privacy Policies. Steven has also served as General Counsel for companies providing software development, financial services, digital marketing, and eCommerce platforms. Steven’s tactical business and client focused approach to drafting contracts, polices and corporate documents results in favorable outcomes at a fraction of the typical legal cost to his clients. Steven received his Juris Doctor degree at New York Law School and his Bachelor of Business Administration degree at Hofstra University.
NJ and NY corporate contract lawyer and founder of a firm specializing in helping entrepreneurs. With a background in law firms, technology, and world class corporate departments, I've handled contracts and negotiations for everything from commercial leases and one-off sales agreements, to multi-million dollar asset sales. I love taking a customer-focused and business-minded approach to helping my clients achieve their goals. Other information: learning to surf, lover of travel, and one-time marathoner (NYC 2018) yulawlegal.com
I love contracts - and especially technology-related contracts written in PLAIN ENGLISH! I've worked extensively with intellectual property contracts, and specifically with IT contracts (SaaS, Master Subscriptions Agreements, Terms of Service, Privacy Policies, License Agreements, etc.), and I have built my own technology solutions that help to quickly and thoroughly draft, review and customize complex contracts.
I am a software developer turned lawyer with 7+ years of experience drafting, reviewing, and negotiating SaaS agreements, as well as other technology agreements. I am a partner at Freeman Lovell PLLC, where I lead commercial contracts practice group. I work with startups, growing companies, and the Fortune 500 to make sure your legal go-to-market strategy works for you.
Elbert Thomas is the founder of the Thomas Law Group, LLC. Elbert is proficient in contract creation, drafting, reviewing, and negotiating various business contracts and demand letters in industries such as construction, personal, professional services, non-profits, and real estate. Elbert typically represents small and large companies in drafting and negotiating countless agreements such as purchase sale agreements, interconnection agreements, lease agreements, demand letters, cease & desist letters, transfer of deeds in real property, and merger/acquisition agreements. In addition, Elbert is also experienced in start-ups, small business formation, drafting operating agreements, and estate planning.
Founder and owner of Grant Phillips Law.. Practicing and licensed in NY, NJ & Fl with focus on small businesses across the country that are stuck in predatory commercial loans. The firm specializes in representing business owners with Merchant Cash Advances or Factoring Arrangments they can no longer afford. The firms clients include restaurants, truckers, contractors, for profit schools, doctors and corner supermarkets to name a few. GRANT PHILLIPS LAW, PLLC. is at the cutting edge of bringing affordable and expert legal representation on behalf of Merchants stuck with predatory loans or other financial instruments that drain the companies revenues. Grant Phillips Law will defend small businesses with Merchant Cash Advances they can no longer afford. Whether you have been sued, a UCC lien filed against your receivables or your bank account is levied or frozen, we have your back. See more at www.grantphillipslaw.com
Pico & Kooker provides hands on legal advice in structuring, drafting, negotiating, interpreting, managing and enforcing complex high value commercial transactions. Adept at navigating complex environments, Jonathan has extensive expertise advising clients on a wide range of long- and medium-term cross border and financial engagements, including public tender participation, PPPs, export sales agreements as well as policy and regulatory formulation. Jonathan and his co-founder, Eva Pico have represented and acted on behalf of lenders, global corporations and other market participants across a range of industries including financial services, infrastructure and transportation. As outside counsel, Pico & Kooker, has developed a strong rapport and working relationship with their clients and appropriately work with their in-house teams to increase consistency, processes and procedures. The company employs a unique approach as practical, business minded outside legal counsel who believe in proactively partnering with their clients to achieve desired results while managing and engaging key stakeholders. They listen to their clients to develop customized solutions that best meet their needs while aligning with their objectives, vision and values. Some representative transactions include advising the World Bank on project finance and portfolio options to address the costs and risks associated with integrating renewable power sources. Also advising them as legal counsel, Jonathan developed policies, regulation and models for emerging market governments entering into public-private partnerships. In addition to his work with the World Bank, Jonathan has worked with some of the world’s largest consulting firms, financial institutions and governmental organizations, including the United Nations, the governments of the US, UK and select African countries. Through out his career, he has worked with large, multinational corporations both by consulting in-house and acting as outside counsel on large cross-border transactions. He graduated from Georgetown University’s law school and was admitted practice as a lawyer in New York, England and Wales and, as a foreign lawyer, in Germany. He has written several articles for trade journals and has been cited by several business publications in worldwide. Jonathan is a native English speaker and has high proficiency in German and a functional understanding of Spanish.
