Partnership Chair
The owners of a limited liability company in North Carolina can create an operating agreement to establish formal rules and procedures for governing and operating their business. An operating agreement serves the same role for an LLC as the shareholders agreement and bylaws do for a corporation. Even single-member LLCs can benefit from operating agreements by having a written document confirming how the owner operates their LLC. Before negotiating an operating agreement, you should familiarize yourself with the aspects commonly addressed by operating agreements.
Basic Company Information
An operating agreement should begin with identifying the name of the LLC and its principal place of business. The operating agreement can also list other basic company information, such as:
- The LLC’s formation date and state of registration
- The duration of the LLC (a specific term or perpetual duration)
- The LLC’s purpose or intended business activities (alternatively, the operating agreement may state that the members have formed the LLC to conduct all lawful business activity for which a party may form an LLC)
Member Information and Ownership Structure
An operating agreement should also include information about the members and the ownership structure of the LLC, either incorporated into the agreement or as a separate schedule to the agreement. Member/ownership information should include:
- The names of the members
- Each member’s capital contribution
- Each member’s ownership percentage
Operating agreements should also address how the company can admit new members, and to whom interests can be transferred or sold, including whether the members must approve by a simple majority, supermajority, or unanimous consent, and what capital contributions the new member must make.
Management Structure and Decision-Making
An LLC’s operating agreement governs how the members manage the business’s affairs. Members may make the LLC member-managed, meaning day-to-day operational authority and decision-making authority rest with the members, or manager-managed, meaning the members delegate some operational or decision-making authority to one or more managers elected by the members. The operating agreement should describe the roles and responsibilities of each member or manager.
Operating agreements can also govern how the members vote on decisions, including whether each member gets an equally weighted vote or whether to weigh member votes by ownership interest. Furthermore, the agreement can identify which decisions require a simple majority, supermajority, or unanimous vote.
Profit and Loss Distribution
Operating agreements can also describe how the company will allocate profits and losses among its members, especially if the members choose to allocate by a method other than their ownership percentage. The agreement can also govern how and when the company must distribute profits to the members.
Meetings and Recordkeeping
A North Carolina LLC’s operating agreement can include provisions requiring official meetings of the members or distinguishing between different types of meetings (e.g., regular annual meetings and special meetings). If the agreement contemplates formal meetings, it can set requirements for advance notice and quorum to hold the meeting.
Operating agreements may also include provisions governing how the company should keep official records, such as meeting minutes and financial records.
Transfers of Interests and Exit Procedures
Operating agreements frequently include provisions governing whether and how members may transfer their interests among themselves or to third parties. For example, an operating agreement may restrict members from transferring interests to third parties without the approval or consent of the other members or give all the members a right of first offer or refusal when a member wants to sell their interest. The operating agreement can also provide procedures for dealing with the interests of a member who exits the company, whether due to retirement, incapacity, or death.
Contact a Business Law Attorney Today
When establishing a limited liability company, an experienced North Carolina business attorney can help you create an operating agreement tailored to your and your partners’ needs and objectives. Contact Patrick, Harper & Dixon, LLP, today for an initial consultation to learn more about what you can include in an LLC operating agreement.
