Indiana LLC Operating Agreement: Everything You Need to Know
Although an Indiana LLC operating agreement is not mandatory, it is highly recommended. 3 min read
Although an Indiana LLC operating agreement is not mandatory, it is highly recommended. The operating agreement for a limited liability company (LLC) is a document that a business uses to establish rules and regulations as well as the general operating structure. Drafting an operating agreement can save you time and money by helping you avoid conflicts between members.
What Is an Operating Agreement?
An operating agreement, typically adopted when the LLC is founded, sets the roles of the participating members and determines how the LLC will be run. Unlike your LLC Formation Agreement, you are not required to file an operating agreement with the State of Indiana. However, as an internal document, a copy should be kept with your records.
The operating agreement names the members of the company and spells out what percentage, or membership interest, they own. It also sets management protocol, defines how taxes are paid, and determines how profits and losses will be divided among the members.
If you are party to a legal action, the court will probably request a copy of your operating agreement. This helps show the court that you have a procedure for dealing with issues related to your LLC.
The operating agreement is meant to be flexible and change as your business evolves.
Why Should a Single-Member LLC Have an Operating Agreement?
With the current Indiana law, you can set up an LLC online and with a credit card in about 15 minutes. The Indiana Secretary of State's website has the forms you need. After paying a fee and submitting the Articles of Organization, you establish your LLC. The process does not require or even mention an operating agreement. It may seem pointless to have one, especially if you are the only member.
However, the Indiana Business Flexibility Act doesn't require an operating agreement because the law has default rules. These regulate the LLC if there isn't an operating agreement or if the operating agreement does not cover something. However, you may wish to follow different rules, and an operating agreement allows you to do so.
One reason a single-member LLC may want an operating agreement is if the member wants to run the company as a manager. If you operate your LLC as a member, only you can take actions on behalf of your business. If you become incapacitated, no one can run the business in your stead. However, if you run your LLC as a manager, you can name a trusted associate the assistant manager and have them run the business if you are unable to. An operating agreement makes this possible.
In addition, third parties such as the IRS or banks may want to know how your LLC is structured. An operating agreement lists who has authority to sign contracts for the LLC, tax status, and other legal information. This can save time and confusion for all parties involved.
Consider an operating agreement for your single-member LLC in case you interact with third parties or need someone else to run the business.
How to Fill Out the Operating Agreement
You fill out the operating agreement using a form or template available online:
- In Section 1, list the name of your LLC and the date you mailed the LLC formation documents.
- In the first line of Section 2, write the effective date.
- In Section 4, list the registered office and registered agent. The registered agent can be you, someone you know, or a Commercial Registered Agent. This information is in your formation documents.
- In Number 5, list the business purpose.
- Section 5, Number 6 is the duration of the business. Most people write "perpetual."
- Page 2 lists the tax classification of your LLC. The IRS will tax single-member LLCs as sole proprietorships and multi-member LLCs as partnerships.
- On Page 3, Number 2, you list the tax year as the calendar year and use the "cash method" of accounting.
- On Page 4, Number 1, you list the date that all members made their contributions to the LLC. This is usually the formation date. List each member's name, address, contribution, and membership interest. If you did not make an actual cash contribution, put $100.
- On Page 4, Number 8, allocate and distribute cash to "all of the members."
- Under Section 5, it is recommended that you put 60 days.
- Sign and date the operating agreement. It does not need to be notarized.
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