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.

Corporate Bylaws                                                     

  • 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 Bylaws

  • 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?

Definitions Section

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)

LLC Information

  • Name, nature, and details of the business
  • Length or duration of the business
  • Address of the office or place of business

Member Information

  • 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

Management

  • Procedure for company management
  • Procedure for decision making (cases that require unanimous consent and cases where majority votes would suffice)

Fiduciary Section

  • 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

Meetings

  • Procedure, frequency, and venue for holding company meetings

Administration

  • Fiscal year, method of accounting, annual report, and other administrative details

Miscellaneous Provisions

  • 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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