Updated November 19, 2020:

An Oregon LLC operating agreement is a document that outlines the ownership and operational structures and procedures of a limited liability company (LLC) in Oregon. It includes information such as the structure, policies, procedures, and other important aspects of an LLC. While an operating agreement is not a requirement for forming an LLC in Oregon, it is very beneficial for an LLC to have one.

What is an LLC Operating Agreement?

An LLC operating agreement refers to a legal document that details an LLC's establishment, size, policies, procedures, members' roles, and other aspects. The state of Oregon does not require an LLC to have an operating agreement. Nonetheless, it is highly advisable that an LLC create this document because it can protect its members from being held personally liable if it is sued. It creates a clear separation between the LLC and its members and enables the company to obtain additional tax benefits.

An operating agreement may specify certain details regarding the operation of an LLC, including the responsibilities of managers, bookkeeping processes, and the frequency of meetings held by managers. By creating this agreement, the company will have legal proof that every member has agreed to follow the rules. This can help prevent legal disputes in the future.

All members are required to read the document. If they are satisfied with the language and wish to file on their own, they have the freedom to do so. On the other hand, if they have any doubt or question, they can consult an experienced lawyer who is able to clarify the language and assist with the completion of the document.

Importance of an Operating Agreement

The main reason why LLC is the most popular business structure in Oregon is because it requires minimal corporate formalities. Nevertheless, the simplicity of forming and running an LLC can be a big obstacle to proper structuring and management, especially if the LLC has more than one member. Since the state government imposes very little law governing the operation of an LLC, it is eventually up to the members to implement their own rules and regulations. This is usually done through the creation of an operating agreement.

When it is properly drafted, the operating agreement of a multi-member LLC in Oregon is typically at least 20 to 30 pages long. Such a lengthy document covers every aspect of the company in detail, from the scheduling of meetings to the transfer of ownership.

While Articles of Organization is a requirement for starting an LLC, it does not govern the LLC. An operating agreement, on the other hand, shows who owns and manages the LLC, how profits are distributed, and how the company will solve current and future problems. An operating agreement may not be necessary for a single-member LLC, but it is crucial for a multi-member LLC.

Important Issues to Address in an Operating Agreement

An operating agreement should not be a fill-in-the-blank template. Instead, it should be created as a unique, customized document that suits the type of business that is being established and the kind of legal issues that need to be addressed. Issues that are not addressed in the document will remain unresolved and may result in internal disputes. An LLC, especially a multi-member one, should have the following concerns addressed in its operating agreement:

  • Will the LLC be member-managed or manager-managed?
  • If the company will be manager-managed, provide the name of each manager.
  • Will there be officers in the LLC? If so, provide the name of each officer.
  • How many units (interests) will be issued altogether and to each owner?
  • What contribution will each owner make to obtain his or her units?
  • What specific circumstances require the consent of all or a majority of the members?
  • Do the members have a duty of loyalty?
  • Will the LLC indemnify the managers and members?
  • Will the LLC pay its taxes as a partnership or S corporation?
  • Is it possible for members to be expelled from the company? If so, under what circumstances?
  • What methods will be used to resolve disputes?
  • How restricted are the transfer of units?
  • Will members be given the rights of first refusal and first offer?
  • Are members obligated to protect confidential information?

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