LLC Bylaws: Everything You Need to Know
LLC bylaws, better known as LLC operating agreements, are the internal rules and regulations for governing a limited liability company.3 min read
2. Who Is Considered a Member of an LLC?
3. Do LLCs Have Stock and Shares Like Corporations?
4. Corporate Bylaws
5. LLC Bylaws
6. What Is an LLC Operating Agreement?
7. What Does an LLC Operating Agreement Include?
LLC bylaws, better known as LLC operating agreements, are the internal rules and regulations for governing a limited liability company.
What Is an LLC?
- An LLC or a limited liability company is a type of business entity that limits the liability of its owners, also known as members.
- An LLC is treated as a separate legal entity from its owners.
- Members are not personally responsible for debts and obligations of the company.
- For forming an LLC, you must file formation documents with the state, along with requisite filing fees.
- Members of an LLC can either appoint a manager or choose to manage the company themselves.
Who Is Considered a Member of an LLC?
- An individual or a corporation that holds ownership in the LLC is called its member.
- An LLC member must have contributed in the capital of the company.
- The contribution could be in the form of money, property, or services.
- In return for his contribution, a member gets a stake in the ownership of the company.
Do LLCs Have Stock and Shares Like Corporations?
- Unlike corporations, LLCs do not issue shares and stock to their owners.
- LLCs assign a percentage of ownership to members based upon their capital contribution.
- Regardless of the number of members, ownership percentages of all the members put together must add up to 100.
- Bylaws are the rules that govern the internal affairs of a corporation.
- Different states have different requirements regarding the items you must include in the bylaws.
Among others, corporate bylaws usually include the following details:
- Organization structure
- Duties and responsibilities of members
- Names and details of directors
- Requirements and procedure for holding meetings of shareholders and directors
- List of committees
- LLC Operating Agreement contains rules and regulations for governing internal affairs of the company.
- These rules are similar to corporate bylaws but in case of an LLC, they are not referred to as “bylaws” as such.
What Is an LLC Operating Agreement?
- An LLC Operating Agreement has different names, like LLC Agreement, LLC Operations Agreement, Operating Agreement, Operating Agreement for LLC, Operating Agreement LLC, LLC Partnership Agreement, LLC Setup Agreement, and LLC Bylaws.
- It's a legal document that sets out duties and responsibilities of members and contains regulations for internal management of the company.
- It includes procedures for making decisions, holding members' meetings, and admitting new members, among others.
- It explicitly states the terms and conditions of the agreement made between the members.
What Does an LLC Operating Agreement Include?
This is an important section that includes:
- Definition of major terms (the terms so defined are usually capitalized in the document)
- Definition of various abbreviations used in the document
- Specific meaning assigned to certain terms (for example, “fiscal year” shall refer to a calendar year)
- Name, nature, and details of the business
- Length or duration of the business
- Address of the office or place of business
- Name and address of members
- Class or type of membership of each member
- Capital contribution of each member
- Each member's percentage in the ownership of the company
- Each member's share in profits and losses of the company
Provisions Concerning Membership
- Whether members can leave the company when they no longer want to continue
- Whether former members can compete with the company
- Distribution of assets in case of dissolution
- Admission of new members
- Procedure for company management
- Procedure for decision making (cases that require unanimous consent and cases where majority votes would suffice)
- Fiduciary duties of members, managers, and office-bearers
- Contractual obligations
- Conflict of interest in case of transactions involving members, managers, and their agents and affiliates.
Liability of Members
- Declaration to the effect that members are not personally responsible for business debts and obligations of the company
- Procedure, frequency, and venue for holding company meetings
- Fiscal year, method of accounting, annual report, and other administrative details
- Provisions for sending and receiving notices
- Declaration to the effect that the company is governed by the laws of the state named in the document
- Signing contracts on behalf of the LLC
- Procedure for resolving disputes
Why Should an LLC Have an Operating Agreement?
- Fewer discrepancies in the conduct of business
- Lowers risk of misunderstanding regarding distribution of profits and losses
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