What Is An LLC Operating Agreement?
An LLC Operating Agreement is an internal document containing the terms and conditions the company’s owners, called members, have agreed to follow. It serves many purposes, primarily as proof of ownership and as an instruction manual detailing how the business is meant to operate.
Does Maine require all LLCs to have an Operating Agreement?
The state of Maine does not require LLCs to have an Operating Agreement but encourages you to have one anyway. According to the Maine Limited Liability Company Act, an LLC can use an Operating Agreement to govern the relationships between the members of the business and also oversee how the company conducts its activities. These are not the only things the document does, however.
What Are The Advantages Of An Operating Agreement In Maine?
An Operating Agreement gives the LLC several benefits that make doing business easy, among other things. Here’s a quick look at them:
Improved daily business operations
Your LLC’s Operating Agreement outlines your business purposes and provides guidelines and instructions so that it can achieve its goals. With the document in place, members and/or managers will know what they will work for and won’t have to guess what to do in order to reach targets. This results in streamlined operations from start to finish.
Better control of your business
Your Operating Agreement can be used to create regulations suited to your business. Without the document, your LLC will be governed by Maine’s default laws. While running your business according to the state’s existing laws won’t put it at a disadvantage, being able to customize rules to suit your needs makes it easier.
Increased accountability among members
Once signed, your Operating Agreement becomes binding and enforceable. Members who signed the document must abide by the rules indicated or risk being sued in court if necessary. Your Operating Agreement will help you keep all members in line with the business’s purposes.
Reduced probability of internal disputes
The information included in your LLC’s Operating Agreement is designed to remove confusion related to various things, such as the roles and responsibilities of each member, the tasks needed to be done, and how profits and losses are distributed. This helps prevent disputes from arising and also helps to bring resolution to arguments and conflicts that happen. Your LLC will be able to operate more easily with it.
Helps open bank accounts
Your Operating Agreement, unlike the Certificate of Formation you submit to the Maine Secretary of State, contains information about all of the members of your LLC. Banks in the state will require you to submit this as proof of business ownership before you can open an account for your company. Once your Main LLC has a bank account, you will be able to separate business from personal finances.
Create a customized operating
What Are The Limitations Of An Operating Agreement In Maine?
While your Operating Agreement brings you many benefits, it has some downsides to it as well. Here’s a quick look:
It cannot be used to circumvent or counter Maine’s laws
Your Operating Agreement allows you to tweak some of Maine’s default rules for LLCs, but the changes must not be inconsistent with existing laws. As a result, the document cannot be used to counter or circumvent state regulations. Courts can render such provisions in your Operating Agreement unenforceable or can order the dissolution of your LLC.
It’s not easy to make
It’s not easy to create a comprehensive Operating Agreement that covers all the aspects of your business. You need to look into the best business practices related to your industry and also do some research to know the kind of issues that similar businesses face. This is in addition to the studying you need to do to learn about the basics that should be included in your Operating Agreement. You must spend a lot of time on the document and might also spend funds on it as well.
What Should You Include In A Maine LLC Operating Agreement?
Your Operating Agreement will serve as your LLC’s manual and must contain all the information necessary for the proper functioning of your company. For example, it must include information about your LLC and its members, properly outline the company’s goals and purposes, and provide guidelines and instructions for every internal process involved in daily operations. If the process becomes too challenging for you, we recommend hiring a lawyer to create a draft for you instead. However, if you’re looking to save costs and write your own LLC Operating Agreement, read on.
How To Form An Operating Agreement
Before working on your Operating Agreement, read the Maine Limited Liability Company Act and study its provisions. You can use these as the basis for your LLC’s regulations but tweak some of them to suit your specific needs.
After that, do some research and look into the best practices for companies in the industry to which your LLC belongs. Also, read up on the issues faced by such businesses. You might be able to use the information you gather here for some specific provisions and guidelines for your company.
When ready, proceed to draft your Operating Agreement. You can then ask a lawyer to review your draft for errors or loopholes.
Your LLC’s information
Start by providing information about your LLC, particularly its name and registered address. Include the name and address of your registered agent as well since they will be the ones corresponding with the state on your behalf.
Next, state the purposes for your LLC’s formation. These will serve as your mission and vision statements, guiding your company toward your chosen direction. Every activity in your company must be geared towards accomplishing your LLC’s goals.
In this section, specify the names and addresses of all your LLC’s members. Indicate the respective capital contributions and interest percentages each one has. The information included here will serve as proof of ownership of your LLC and will clarify any concern regarding the amount members receive from the business.
Guidelines for membership concerns
Next, provide guidelines for membership concerns. Include instructions for adding new members, transferring interests, and withdrawing one’s membership from the company. Specify the consequences of withdrawing.
In this section, you need to describe how your company’s accounting system works. Start by indicating your tax treatment and fiscal year. Then, describe how your business monitors and records financial transactions and provides reports to members. Investors will look at this part of your Operating Agreement to see if you have a reliable and trustworthy accounting system before they invest.
Guidelines for distribution of profits and losses
Include guidelines for the proper distribution of profits and losses among members. Usually, these are distributed according to interests, but you can change that as long as all the members agree. Specify how and when these will be given to members.
Guidelines for dispute resolution
Next, provide instructions for resolving conflicts that arise during the course of business. These must aim to solve these issues internally and only resort to external mediation when initial attempts fail. The guidelines here will help your business run smoothly regardless of the problems that come.
Guidelines for dissolution
Lastly, provide guidelines so that your LLC can be dissolved, if necessary. There are several reasons why your business has to close, such as the resignation of a member or a court order. Regardless of the reason, your LLC has to know how to close properly so that the remaining assets would be liquidated and distributed among members and so there won’t be any outstanding debts.
Why is an operating agreement needed?
Enforceable in Court
The terms outlined in a written LLC operating agreement is usually enforceable in a court of Law.
Opening Bank account
Certain financial institutions require you to produce an operating agreement to verify whether you have “signing power” for the LLC.
If the terms of compensation, roles, and responsibilities are mentioned in the operating agreement, it avoids disputes among LLC members in the future.
Preserve limited liability status
Especially if you are a single-member LLC, having an operating agreement helps ensure your liability status is upheld in court.
Create a customized operating
How Much Is A Maine LLC Operating Agreement?
An Operating Agreement in Maine costs nothing if you prepare it yourself. If you avail of services online, prepare to spend upwards of $175 for their assistance. The amount goes higher if you hire lawyers.
Frequently asked questions
A single-member LLC doesn’t need an Operating Agreement to register with the Maine Secretary of State. But they will benefit from having the document in place. It is imperative that a single-member LLC creates an Operating Agreement to reinforce its limited liability status and define how the company carries out its operations.
Yes, if you include a provision allowing amendments and modifications to your Operating Agreement. You must be able to update the document as necessary to accurately reflect the changes in your LLC.