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
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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