Multimember LLC Operating Agreement

What is an LLC operating agreement?

An LLC operating agreement is a foundational legal document that governs the internal operations, management, allocations of profits and losses, and member relationships within a limited liability company (the “LLC”).

A multi-member LLC operating agreement template ensures operational consistency of a business, as well as legal clarity for its members and their successors. The text of a document lays out:

• detailed information about members, their capital contributions, and membership interest;
• registration information (LLC’s name, address, purpose, registered agent);
• management structure;
• voting and members’ meetings;
• transfers of interest and withdrawal;
• financial and fiscal considerations;
• dissolution and winding-up and other important information.

The parties involved in an LLC operating agreement template are its members. Neither federal nor state laws define the maximum number of members an LLC could have. Members could be citizens or foreign individuals, legal entities, or businesses that are registered within or outside the U.S.

The present document could be used only as a multi-member LLC operating agreement template. If there is only one member in the LLC, in that case a single-member operating agreement should be used instead.

In most of the U.S. states, having an operating agreement for an LLC is not mandatory. Therefore, parties may create and sign a multi-member LLC operating agreement template at any time—on the first date of its registration or in the course of its business activity.

How to draft an LLC operating agreement template?

To draft an effective LLC operating agreement template, ensure your document includes all mandatory provisions, reflects all previous arrangements, and contains clear wording. Below we made a detailed list of all provisions and their explanations a solid operating agreement should have:

Members and Their Membership Interest

One of the key elements of a multi-member LLC operating agreement template is the inclusion of information on each member’s capital contribution. The contributions may have various forms:

• goods (e.g., laptops, chairs);
• services (e.g., free accounting or tax services);
• property (e.g., commercial property for doing business);
• rights (e.g., domain name, IP rights to use a trademark);
• cash; or
• other assets (e.g., bitcoin).

Along with each member’s contribution, the text of a document shall define their membership interest percentage in the LLC. This information is required for profit and loss distributions, voting, and execution of other members’ rights in the LLC.

Details of the LLC Formation

Every member-managed LLC operating agreement shall define the LLC’s formation details, including:

• Full name of the LLC: The name should be unique and not contain absurd, offensive, or illegal information. It should also not repeat the name of other registered businesses. For instance, when drafting a Texas LLC operating agreement template, make sure your LLC’s name does not match with other names in the Texas Registry of State.
• Applicable law: The laws of a state where the LLC is registered shall automatically apply to its formation, operation, and dissolution. The same rule also applies towards provisions of an operating agreement. You cannot register your LLC in Colorado first and then draft a Florida LLC operating agreement governed by the state laws of Florida.
• Duration: The text of any LLC operating agreement shall define if the LLC is registered for a specific period of time or indefinitely. If its duration is limited in time, the text of an operating agreement should lay out the exact date or period of time upon expiration of which the LLC ceases to exist.
• Registered agent: The full name and business address of a registered agent should also be included in the text of an operating agreement. If, with time, this information changes, an LLC operating agreement should be amended accordingly.
• Purpose: This is an optional provision in the text of an operating agreement where members can define the purpose. That purpose shall not include performing illegal activities. If you plan to list specific business activities, then these activities should be named according to the business organization codes of the applicable state. For instance, in an operating agreement LLC Texas template, the reference shall be given to the Texas Business Organizations Code.

Management of the LLC

The LLC’s daily business and operations could be managed either by its members or by designated managers.

In a member-managed LLC operating agreement, each member has a right to operate the business on a daily basis and to conclude binding legal contracts and agreements on the LLC’s behalf. However, in some cases adoption of certain decisions may require prior written approval of all managers. For instance, a member plans to dispose of an LLC’s asset whose value exceeds a certain threshold. Or, a member wants to enter a contract according to which the LLC’s potential contractual obligations may exceed certain limits.

For an operating agreement manager-managed LLC, members appoint specially designated managers who shall deal with the LLC’s business activity. In that case, members have to agree on the following:

• Selection process: managers could be elected unanimously by all managers or by a simple or qualified majority. It is also essential to find out how each member’s voting right should be evaluated. In particular, each member has only one vote per person or a number of votes pro rata to their membership interest percentages.
• Number of managers: members can appoint one or several managers. The laws do not provide any minimum or maximum threshold. An LLC’s manager could be one of its members or any third party.
• Corporate limits: members shall define clear and precise corporate limits exceeding which a manager shall first seek prior written approval from the members’ board. For instance, stating a court proceeding, entering certain types of contract, etc.

Voting and Meetings of LLC Members

Every LLC operating agreement template lays out when, how, and according to which procedures to held the LLC’s meetings. Therefore, we recommend members give answers to the following questions:

• When? Meetings of members could be annual or special. Having an annual meeting is mandatory. It shall take place once for each fiscal year.
• What is a quorum? Adoption of certain decisions requires members’ votes. Members shall define in advance the quorum—unanimous, simple majority (50%), or qualified majority (2/3 or 3/4).
• How to calculate voice? Each member may have one vote or several votes pro rata to their membership interest percentage in the LLC’s capital.
• How to call a meeting? A good LLC operating agreement example specifies when and how to send a notice to call a regular or special meeting, what to include in the agenda, etc.

Transfer of Membership Interest

A good example of a member-managed LLC operating agreement shall define rules for the transfer of membership interest. A transfer of membership interest is a member’s right to sell, transfer, assign, or dispose in any other way of their LLC membership interest.

The parties to an operating agreement LLC may choose if to limit such a right and to which extent. Therefore, the text of the document may provide the following:

• First, a member can transfer membership interest to both third parties (outside the LLC) and current members;
• Second, a member can transfer their membership interest only to other LLC members; or
• Third, a member can transfer their membership interest to a number of permitted parties (e.g., immediate family members).

If an LLC’s members can freely transfer their membership interest to both members and non-members, it is possible to implement additional restrictions:

• Right of First Refusal: A transferring member shall first offer their membership interest to the remaining members. If neither of the remaining members is ready to purchase that membership interest for a certain period of time, a transferring member can transfer it to a third party. The period during which remaining members may purchase the interest could last between 30 and 60 calendar days. A transferring member shall offer their membership interest on the same terms and conditions to both the third party and the remaining LLC members.
• Lock-up Period: Members may not transfer or sell their membership interest within a specific period of time after becoming an LLC’s member. This period is also known as a lock-up or cool-off period. The duration of a lock-up period could last a few months or several years.
• Approval from members: A member who is willing to transfer their membership interest to a third party might be required to seek prior approval from the remaining members. Failure to obtain such an approval automatically results in a transaction with a third party being void. The text of an operating agreement LLC shall provide the necessary quorum to adopt such decisions. In some cases unanimous consent of all members is required to approve the transfer of a membership interest to a third party.

Dissolution of the LLC

LLC could be dissolved in two cases:

• involuntary dissolution (when an LLC should be liquidated by virtue of applicable federal or state laws); or
• voluntary dissolution (when members vote for an LLCs dissolution).

A solid LLC operating agreement template shall provide detailed procedures for both scenarios. It shall describe the allocation of profits and losses between the members, evaluation of assets, appointment of a liquidator.

In case of involuntary dissolution, the members shall not vote as the dissolution takes place automatically. An LLC may undergo a forced dissolution in either of the following cases, for instance:

• LLC goes into bankruptcy.
• no members remain in the LLC,
• LLC’s term expires; or
• other circumstances provided by applicable laws.

Opposite to the involuntary dissolution, a voluntary liquidation takes place by virtue of the members’ decision. The text of the LLC operating agreement template shall define a specific quorum (i.e., minimum number of votes) to adopt such a decision. The quorum could have various forms:

• unanimous vote of all members;
• simple majority of all members;
• qualified majority of all members;
• members who own 75% or more of the membership ownership, etc.

How to customize a legal document template at Faster Draft?

To personalize an operating agreement for your LLC, follow a few easy steps below:

1. Click the button “Create Document.”
2. Answer simple questions in the form.
3. Select a document’s format—LLC Operating Agreement PDF or Word.
4. Make a payment.
5. Download, sign, and print a customized document template in minutes.