Operating Agreement Overview

A sample operating agreement for a two member LLC is a basic template to follow to create an operating agreement for you two member limited liability company. An operating agreement is a legal document that sets out the internal workings of your LLC. Having one is usually not required, but it is strongly recommended.

Multi member LLCs like two member LLCs especially stand to benefit from having an operating agreement, as having multiple members means they must ever operate with the possibility for internal disputes arising regarding company-related business. Having an operating agreement can decrease the likelihood for such disputes by setting out how company business is to be handled before it must be handled. Or, at the very least, it can offer a path for how disputes can be resolved.

Sample Operating Agreement

Because operating agreements are generally not required by the state, their format and requirements are not officially regulated. An operating agreement may be as simple or as complex as the members’ deem necessary. A sample outline of how an operating agreement may be set out is as follows:

  1. Introduction. This states the name of the company, the names of the members, and the nature of the business the LLC will be engaged in.
  2. Definitions. This section defines certain terms that will occur later on in the agreement. Terms defined may include such terms as “agreement,” “business plan,” or “effective date,” or any term whose definition seems necessary.
  3. Formation. This states the type of LLC that is being formed (single- or multi-member), it’s name, when the LLC will be effective and for how long, what the purpose of the LLC is, and who the registered agent of the LLC will be.
  4. Accounting and banking. This sets out what financial records shall be kept and where, who will handle financial matters, who will handle auditing, how banking will be dealt with, and what the fiscal year of the company will be.
  5. Members’ rights. What rights the members will have will be laid out in this section. This may include voting rights, administrative powers, and the ability to enter into contracts on the LLC’s behalf.
  6. Management. This will set out how the LLC is to be managed, including whether it will be a member-managed or manager-managed LLC. Whether there will be meetings, how often these meetings will be, and what may be decided in these meetings may also be stated.
  7. Capital  contributions. This states what amount of capital each member will contribute to the LLC. Capital may include money, property, services, or some other agreed upon contribution.
  8. Profit and loss allocation. How profits and losses from the LLC will be distributed to members will be set out here. This distribution may be done proportionally to each member’s contribution, or some other method of distribution may be agreed upon. Unlike corporations, LLCs are free to choose any distribution system they want.
  9. Membership transference or withdrawal. This states whether members will be able to transfer their ownership to another party, and if so, how. Similarly, how a member’s desire to withdraw from the LLC will be dealt with will be set out.
  10. Dissolution and termination. The reasons for dissolution or termination of the LLC will be stated here. These can include the LLC expiration being met, the LLC members mutually agreeing to part ways, and breach of contract by one of the members. This section should also state how material and intellectual property should be distributed.
  11. Confidentiality, property rights, and licenses. This identifies what information is considered confidential and to what extent it is so, who owns the rights to intellectual and other property, and who may grant those rights to third parties.
  12. Prohibited activities. This covers what activities both parties agree should not be engaged in, either in the name of the company or with company resources.
  13. Miscellaneous. This section may be used to cover any items that were not covered in the previous sections.
  14. Signatures. Here the signatures of the LLC members and the LLC representative, along with the date, will be listed.

Upon completion and signing of the document, a copy should be distributed to both members to be kept in their records.

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