1. Operating Agreement: An Overview
2. What to Include in the Operating Agreement
3. Frequently Asked Questions

An LLC Operating Agreement in Alabama is an agreement between all members of the LLC; the agreement specifically identifies how the LLC will be managed, voting rights, how profits/losses will be distributed, and other important decision-making processes.

Operating Agreement: An Overview

If you operate as a single-member LLC or even a family-owned LLC, the operating agreement might not be as beneficial for you. However, if you operate a multi-member LLC, then this agreement is incredibly important.

If you are unsure of how to draft the operating agreement, you can hire an attorney to assist in the process. It is also important to keep the agreement up-to-date with any changes, i.e. registered agent change, member contact information change, etc.

The State of Alabama allows implied and oral agreements as proof of how the business can be managed. However, it is important to have a formal operating agreement in place to prevent potential legal issues among members. It is also important for the agreement to be signed by all members in front of a notary public.

The operating agreement might need to be provided in the following circumstances:

  • Financial institution for lending, i.e. loan arrangements
  • Title Company when purchasing real estate
  • Accountant for accounting/tax services
  • Lawyer for legal services
  • Court if a lawsuit is brought against the LLC, particularly between members

What to Include in the Operating Agreement

You will need to include general information regarding your business, including your company name, principal place of business, the date in which you formed your LLC, the name/address of your registered agent, and the term of your business (if there is an end date). Also included in this agreement is information of all members, including their name, address, amount of contribution to the LLC, and ownership percentage in the business. All members are required to sign the agreement. Also included in this agreement are important decision-making processes.

Frequently Asked Questions

1. What is an EIN?

An EIN, also referred to as an Employer Identification Number, is similar to a Social Security Number. This number identifies the business, and is used for tax purposes, as well as to open a business bank account, and file other important tax-related documentation regarding the business.

2. Do I need to obtain an EIN?

You do not necessarily need to obtain an EIN. For single-member LLCs, only if you operate an LLC that is elected to be taxed as a corporation, will you need to obtain this business identification number. However, if you operate as a single-member LLC and wish to hire employees, then you will need an EIN. If you form a multi-member LLC, you will automatically need an EIN.

3. What if my LLC is going to offer professional services?

You can form your LLC to provide professional services. However, in the State of Alabama, you can only offer one specific type of service within the LLC, and all members must be licensed in that area to perform the service, i.e. lawyers.

4. Can foreign LLCs do business in Alabama?

If you operate a foreign LLC, and wish to do business in the State of Alabama, you will have to register with the Alabama Secretary of State before conducting business. You will also be required to appoint a registered agent who is physically located in the state. The fee to register online is $260. You can also register by mail by submitting two original copies of the Foreign Limited Liability Company Application for Registration, along with a $150 filing fee. You can mail the application to the Business Entities Division within the Alabama Secretary of State. You are also required to file a Privilege Tax Form within 2.5 months after you’ve created your foreign LLC. You can mail this form to the Alabama Secretary of State, c/o Business Entities Division, P.O. Box 5616, Montgomery, Alabama 36103.

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