LLC Bylaws or Operating Agreement?
In almost every state, once its members form a limited liability company, an operating agreement is required instead of LLC bylaws. Most banks, financial institutions, and other organizations use the terms bylaws and operating agreement interchangeably. Although they vary slightly, because members of an LLC hold membership certificates and not stock, an operating agreement outlining how the corporation will be run and who will run it is necessary.
Another common mishap is that members of an LLC file articles of incorporation. What’s required for an LLC are called the articles of organization. The articles of organization are usually filed with a state’s Corporation Commission or Public Regulatory Commission where the operating agreement is not and simply kept with the corporate records.
Operating Agreement Basics
The LLC bylaws or operating agreement should consist of the following:
- Name – The name of the LLC. It should be written for legal purposes as ABC, Limited Liability Company or ABC, LLC.
- Purpose – A statement of why the LLC was formed and its purpose should be outlined in this section.
- Registered Agent – The name and physical address of the registered agent the LLC members have chosen is recorded here. This can be a person or an organization. A physical address must be provided so the registered agent can receive legal notices on behalf of the LLC.
- Articles of Organization – A statement indicating when and where the articles or organization were filed. This section should also include that the secretary of the LLC filed the articles of organization and paid all due fees.
- LLC Term – This item should state when the LLC was formed and how long its term will be.
- Members and Interests – Each member of the LLC should be listed along with the amount of interest or contributions made to the LLC; i.e. dollar amounts. This section may also outline how member certificates are issued, who issues the certificates, and how an LLC dissolution will be handled.
- Profits and Losses – This section should list how profits and losses will be handled within the LLC.
- Distributions – Unlike S Corporations where all partners must receive equal distributions, an LLC may state in this section who, when and how distributions will be made.
The Nuts and Bolts of LLC Bylaws
Your LLC bylaws or operating agreement can be as lengthy and detailed as you wish, however, the nuts and bolts of the operating agreement usually include who will run the organization, how membership rights can be transferred and who will hold elected offices.
- Managing Member – The name of the managing member of the LLC should be clearly listed along with a term of office.
- Duties of Managing Member – The duties of the managing member should be outlined clearly so other members understand the powers of the managing member. This section can approve or deny a managing member as many rights as the other members of the LLC wish. Usually, the managing member of the LLC has the right to act on behalf of the entire LLC in all decisions.
- Rights and Powers of Other Members – Here any member may be named to take the place of the managing member in case the managing member can’t perform his or her duties. It should also list the duties of the other members and offices they hold such as vice president, secretary, treasurer as well as terms for each.
- Transferability – Ever operating agreement should determine how a management certificate may be transferred or sold in this section.
- Governing Law – This section should contain the state laws that will govern the LLC.
- Miscellaneous – Other items may be included in the LLC bylaws or operating agreement as deemed necessary by its members.
- Signatures – The operating agreement should be signed by the managing member of the LLC and if required, all other members.
Writing the Operating Agreement
The LLC bylaws or operating agreement can be written by an attorney decided upon by all the members or most corporation commissions offer samples of an operating agreement on their websites. If you choose to skip the legal fees and incorporate on your own, you can find both an operating agreement template and articles of organization template in our Media Gallery.