1. What Is the Purpose of an Operating Agreement?
2. Is an Operating Agreement Necessary?
3. Who Will Need Your LLC's Operating Agreement?

A Michigan LLC operating agreement template is a template of a legal document used by LLC's contributing and managing members to establish procedures and policies. Though not required, it may be filed with the state of Michigan.

By drafting an operating agreement, you can outline the relationship between the entity and the officials of a company. You can also establish rules and regulations that the company's officials will operate under.

What Is the Purpose of an Operating Agreement?

An operating agreement serves as the governing document of a company. If there is no written operating agreement, a company needs to abide by the default rules for LLCs in Michigan.

A written operating agreement serves as proof that a company is acting as a limited liability company rather than a partnership or sole proprietorship. A written operating agreement serves as an internal document. You need to keep a copy of the operating agreement with your business records.

The main function of an operating agreement is to indicate who the owners of an LLC are and what percentage of the LLC each member owns. This percentage is also referred to as a membership interest.

An operating agreement defines the management of an LLC, how taxes will be paid, and how profits and losses will be distributed among the owners of an LLC.

An operating agreement needs to identify the managers and members who have access to the bank account of the company.

Is an Operating Agreement Necessary?

The state of Michigan does not require that LLCs have an operating agreement in order to do business within the state. However, if an LLC does not have an operating agreement, the owners or members could be deemed liable by the court when it comes to litigious activity against the LLC.

The state of Michigan does not have any specific guidelines regarding the content of an operating agreement for an LLC. This allows the owners to write the operating agreement so that it fits the needs of the company.

If the owners of an LLC refuse to complete and file the operating agreement, the members will place the protections that the operating agreement provides over the financial and personal assets of the members. The members will also bypass the tax benefits that are only available to the businesses that file their operating agreement with the state.

Though this does not mean that the owners will be liable for the damages, they will not be forced by the court to liquidate or sell personal property to fulfill the claims. 

As long as the owners implement the operating agreement, they will be able to enjoy tax benefits that would not be available otherwise.

Members should review the operating agreement to make sure it is clear and easy to understand. If you can't comprehend the documented language easily, you should seek help of an attorney.

Also speak to an attorney if your business requires complex ownership agreements, industry-specific management, or has a large number of members or investors.

Who Will Need Your LLC's Operating Agreement?

You will likely need to provide your LLC's operating agreement to the following parties:

  • A lender when trying to get financing for your LLC
  • A title company when buying real estate on behalf of your LLC
  • Tax and accounting professionals when seeking financial assistance
  • Attorneys when looking for legal console
  • Potential partners or investors interested in the LLC

If you end up going to court because your LLC is facing legal action, the court will likely request your company's operating agreement. The operating agreement can help you prove to the court that the structure of your company is well-organized for dealing with any issues that may arise.

Flexibility is one of the most frequently touted advantages of forming an LLC.

An operating agreement for a Michigan LLC needs to state whether the members or managers of the LLC have managerial control.

An operating agreement needs to describe responsibilities and duties of the members and managers of an LLC.

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