LLC companies with more than one owner use multi-member LLC operating agreement template as a regulatory document. They use it to define the ownership shared among the owners, the management structure, conflict resolution practices, and the company’s policies and procedures. The LLC operating agreement assists the members in setting out a well-defined direction for the LLC. In order to make the document valid, it must be signed by all members (owners).
Reasons for drafting operating agreement:
An LLC provides the owners personal asset protection. This is because they have limited liability protection that extends the owners’ liability as long as their investment into the company. For standard partnerships or corporations, this provision does not apply to. Therefore, multi-member LLCs are appropriate for family-owned businesses. Moreover, the number of members who can own a multi-member LLC, there are no constraints to them. Individuals, businesses, other LLCs, corporations, friends, family members, etc. can be the members. Drafting a multi-member LLC provides the company more legitimacy to creditors, investors, customers, and competitors. By either US citizens or non-US citizen members, multi-member LLCs can be formed. Hence, they can assist non-US citizens in conducting legitimate business in the US. Multi-member LLCs are not taxed as corporations. This means that they are subjected to fewer tax regulations than corporations. Also, as C Corp through Form 8832 or S crop through Form 2553, multi-member LLCs provide the owners the flexibility to have their companies taxed. As pass-through entities, multi-member LLCs are treated. This implies that the LLCs don’t pay taxes as an entity. The reasons behind is that the taxes are “passed through” to the owners.
What to include in an operating agreement?
A multi-member LLC operating agreement outlines different details that are important for the smooth operation of the company. Consequently, every LLC will contain a distinguishable multi-member LLC operating. However, here are some essential details that have to be covered in LLC operating agreement;
The operating agreement should give details regarding the formation of the LLC. This will contain the following;
- An LLC or Limited Liability Company designator must be included in the company name.
- The formation date
- Business purpose
- The principal place of business
The LLC’s members or owners should be mentioned in the multi-member LLC operating agreement. Include the following details in this section;
- The residence of the member’s name and place
- Each member initial contributions
- Each named LLC member percentage ownership
- The agreement must specify how and when (quarterly, annually, etc.) the profits and losses will be assigned.
- In the document, specify the profit/losses distribution procedures and methods.
The management structure adopted by the LLC members must be indicated in the LLC operating agreement. For instance, a multi-member LLC can be member-managed or manager-managed. Identify and specify the roles of the members/managers appointed for management duties in the agreement. Additionally, the powers assigned to the members/managers must also be clearly defined.
You have to specify the accounting procedures and regulations of the LLC. In this section, you should highlight the bookkeeping policies and how members’ accounts shall be credited or billed. It is also important to define accounting and tax reporting procedures.
Define other policies and procedures within the multi-member LLC in the agreement. You should also define in the document the valuation of exiting members’ interest procedures.
Certification of the members
All the names of the LLC members, their signatures, and dates of signing must be indicated in a multi-member LLC operating agreement.
Multi Member LLC Operating Agreement
Multi Member LLC Operating Agreement Template
Free Multi-Member LLC Operating Agreement Template
In conclusion, a multi-member LLC operating agreement template legally binds all the signatories to its stipulations once it gets signed. It is suggested to use the template as it is less costly and time-effective.