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Key Provisions In A Limited Liability Corporation Operating Agreement

Posted on in Business Law

b2ap3_thumbnail_liability-corporate-law-definition_20171122-192659_1.jpgKey Provisions In A Limited Liability Corporation Operating Agreement

Oswego, Aurora, and Naperville LLC Operating Agreement Attorney

Business and LLC Attorney in Aurora and Oswego

What is an Limited Liability Corporation Operating Agreement?

An Limited Liability Corporation Operating Agreement or otherwise known as an “LLC Operating Agreement” is a written agreement describing how an Illinois Limited Liability Corporation will be operated.  Generally, there are twelve (12) major subjects that should be discussed in an LLC Operating Agreement.

Article One:  Company Formation

The Company formation section describe the name of the LLC, how the LLC will be taxed, the Company’s purpose and scope, the company restrictions, the company’s principal place of business and the registered agent for the LLC.  The purpose of the Company Formation section is to describe the basics about the LLC and where it operates and who is empowered to be the registered agent on behalf of the LLC.

Article Two:  Tax Matters

Article Two deals with tax matter issues such as how the LLC will be taxed and who shall make important tax decisions on behalf of the LLC.  This also should include who is the tax manager on behalf of the LLC.  An LLC is a disregarded entity which means the LLC corporate structure is disregarded for tax purposes and each individual member or owner shall deal with their specific tax issues according to their membership interests such as profit and loss allocation as described in the LLC Operating Agreement.

Article Three:  Membership Interests

Membership interests in an LLC are essentially the owners of the LLC.  Members is the appropriate term for an owner of an LLC.  With an Corporation, the correct term of an owner is a shareholder or shareholders.  This Section also should inform the Members and Managers of the LLC how to value the members interests in the LLC.  This Section should state the percentage ownership or number of Membership interests (or units) that each Member has.

Article Four:  Capital Contributions

Capital contributions describe how the LLC will be funded and how funding decisions and financing decisions of the LLC will work.  This Section should discuss the initial cash contributions, whether mandatory additional cash contributions are necessary, and how Membership interests will change if additional cash contributions are made unequally (and if at all) by all Members.

Article Five:  Allocations and Distributions

The first section in Article V addresses how profits and losses will be allocated among the members of the LLC.  Another section addresses how distributions to members will incur and the decision making required for a distribution of cash and/or in-kind distributions to occur.  A distribution is essentially a withdrawal of cash or in-kind funding for Members or otherwise a dividend.  A distribution is a form of payment for the Members.

Article Six:  Company Management Structure

An LLC’s company management should be generally managed by a Manager or Managers which are appointed by the Members of the LLC.  This Section also should address how and when a Manager or Managers can make important decisions on behalf of the LLC.  Specifically, the important decisions of the Managers should be outlined in this section such as the sale of all or substantially all of property; admittance of any additional members or managers; expelling a member; dissolving or liquidating the LLC; and/or distributing more than 25 percent of the fair market value of the Company’s assets in any tax year; and the ability to purchase or sell another business unit.

Article Seven:  Manager’s Duties and Responsibilities

This Section must address the role of the Manager, the extent and scope of their duties and responsibilities; manager’s power to amend the LLC Operating Agreement and make firing and hiring decisions, and how to remove a manager.  This Section is vital because the Manager is an important decision maker for the LLC.  

Article Eight:  The Members

The Membership section addresses how members are selected; their percentages and names; Limited Liability of Members; No right to participate in management decisions, and how members should not have the power to bind the LLC in major LLC decisions.  Furthermore, the Members have restrictions in a closely-held LLC in withdrawing from the LLC and selling their Membership interests.  Furthermore, this Section must limit a Member’s creditor concerns from being assigned a Member’s LLC Membership interests.  Decisions such as how to expel a Member also should be included in this Section and key voting decisions should also be addressed in this Section.

Article Nine:  Books and Records

Books and records describe how the company’s books and records should be maintained and operated.  This Section must also describe the Company’s tax year; how bank accounts will be operated and shared among the Members; and reports that should be given to Members every year from the Manager(s).

Article Ten:  Adding Additional Members

This Article must describe how additional members can be added to the LLC and how these decisions will be made.  This Section also should detail how a Member’s interest should be valued and when the appropriate closing date shall be held.  Generally, the LLC will have a first right of refusal to purchase a withdrawing Member’s Membership interests.

Article Eleven:  Dissolution and Termination

This Section deals with the procedure for dissolving the LLC; liquidating company property; who shall have a preferred right of repayment; and how the Members and Managers will be treated if the LLC decides to dissolve or terminate the LLC.  

AURORA AND OSWEGO BUSINESS AND LLC ATTORNEY

KENDALL COUNTY AND DUPAGE COUNTY BUSINESS LAWYER

In conclusion, Sean Robertson and Robertson Legal Group, LLC is an entrepreneur that is passionate about advising small to medium sized business owners and family-owned businesses on their LLC and Corporate decisions such as drafting a well-written LLC Operating Agreement.  Robertson Legal Group, LLC has offices in Naperville near Aurora, Oswego, Bolingbrook, Romeoville, Plainfield, Yorkville, Sugar Grove, Joliet, Crest Hill, and Montgomery.  Sean Robertson resides in Yorkville, Kendall County.  Sean Robertson may be reached at 630-780-1034 or via online contact form.

 

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