What Is An LLC Operating Agreement?
An LLC Operating Agreement is an internal document that contains all the information the company needs to operate and reach its goals. It provides details about the LLC and its owners, who are called members. The document also includes all the rules and regulations the members have agreed upon so the business operates smoothly.
As per the Mississippi Limited Liability Company Act, an LLC’s Operating Agreement is officially called a “Limited Liability Company Agreement.”
Does Mississippi require all LLCs to have an Operating Agreement?
Mississippi does not require companies to have an LLC Operating Agreement to operate. The state code merely encourages the members of such companies to enter into an Operating Agreement so they can regulate the business’s affairs better and with ease. Those who prefer not to create such a document will forfeit the many benefits it can provide.
What Are The Advantages Of An Operating Agreement In Mississippi?
An Operating Agreement gives LLCs certain advantages that make doing business in Mississippi easier and more profitable. Here’s a quick look at them:
Limited liability protection
Your LLC Operating Agreement strengthens the protection your Mississippi LLC provides to your personal assets in case a lawsuit is filed against it. The document does this by formally separating you from your company, thus limiting your liability over its obligations. Courts will honor the provisions protecting your personal property and belongings.
Bypass the state’s default rules for LLCs
By creating an LLC Operating Agreement, you will be able to run your company the way you want to, as long as your rules are not inconsistent with Mississippi’s state regulations. You can customize certain aspects of your business–such as the relationship between its members and how you distribute revenues among them–so that it can run according to your preferences.
Keeps members accountable
Your Operating Agreement becomes binding once all members sign it. Everyone has to follow the rules and regulations agreed upon as indicated in the document, and those who violate can be called to account either internally or externally in court. This will help keep every member in line, regardless of the amount they contributed to the company.
Streamlines daily operations
The detailed instructions and guidelines in your LLC Operating Agreement will help improve productivity by streamlining your work processes. With them, the members and managers, if any, won’t have to try and figure out what to do in certain situations. Everything there is to know is already there in writing.
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What Are The Limitations Of An Operating Agreement In Mississippi?
While an LLC Operating Agreement has many advantages to give, it also has some limitations preventing it from doing everything. Here’s a quick look at them:
It is an optional document
The state of Mississippi does not require LLCs to have an LLC Operating Agreement, meaning that it is optional. This could lead to LLCs running without the stability and support an Operating Agreement provides.
It does not have control over everything
Comprehensive Operating Agreements cover all the bases for the LLCs they belong to. However, no matter how well-written your Operating Agreement may be, it’s a fact that it does not have control over everything that happens, especially those caused by external factors such as the tornadoes and floods that hit Mississippi at times. The document is simply meant to help you prepare for such unwanted situations.
What Should You Include In A Mississippi LLC Operating Agreement?
Your Mississippi LLC Operating Agreement has to cover all the bases with regard to your business. This means it must contain all the information and instructions necessary for your company to thrive, grow, and achieve its purposes and goals.
For this reason, your LLC Operating Agreement has to include information about your LLC and its members, guidelines for all internal processes in the company, and provisions for important concerns such as changes in the membership and potential dissolution.
How To Form An Operating Agreement
Before writing your LLC Operating Agreement, take time to research and study the best practices for LLCs in your industry in Mississippi. Then, carefully think of the potential concerns and issues your company might face when it does business.
If you’re a sole member, ask around and gain insight about the matter. If you run a multi-member LLC, brainstorm with your co-members so you can plan ahead.
If you’re personally creating an LLC Operating Agreement, do your best to follow our tips below, then ask a lawyer to review the document when you’re done. If the task becomes too challenging or confusing, you can hire said lawyer to help you draft the document instead.
Your LLC’s details
Start by providing information about your LLC, specifically its name and address. Also, indicate the name and address of your registered agent since they will be receiving legal documents about your business and interacting with the state of Mississippi on your behalf.
Next, specify the purposes for your business’s existence in the state. These reasons will become your mission and vision statements, something your company has to strive to achieve. The courts can order the dissolution of your business if your actions are not geared towards attaining these goals.
After that, provide details about your LLC’s members, specifically their names, addresses, capital contributions, and respective interests in the company. This section will serve as your proof of ownership. Courts can also look here to verify if certain people are indeed involved in your company.
Management style and members’ roles
In this section, you must indicate how your LLC will be managed. The structure you choose determines the roles each member plays in your company.
Member-managed LLCs are personally operated by active members who personally run the business and oversee its operations. On the other hand, manager-managed LLCs are run by non-members who were appointed for the task. The members take a passive role in this scenario and only participate in company-wide decision-making.
After indicating your management style, you must include detailed descriptions of the members’ or managers’ roles and responsibilities. This will set clear expectations and limit the tasks given to each person.
Limitation of liability
Your Operating Agreement must include provisions separating your business from its members. This will limit the liabilities each member has over your business’s obligations. Single-member LLCs benefit much from the document as this part makes their business look and feel more like an incorporated entity than a sole proprietorship.
Meetings and voting
Guidelines for scheduling meetings and voting sessions have to be included in your Operating Agreement. You must conduct meetings for various reasons, such as providing updates and discussing matters important to the business. Voting sessions also need to be conducted so that members can participate in making decisions affecting the LLC.
Record-keeping and reporting
Your Operating Agreement should contain detailed descriptions of your accounting system. This means describing how your business monitors and keeps track of all financial transactions, records them, and then provides reports to all members and investors.
Disputes can happen at any time in your business. This is true no matter how detailed your Operating Agreement is. To prepare for such situations, you must include guidelines for resolving disputes that happen inside your LLC. The instructions here must be geared towards solving the issues internally first before accepting any outside help.
Amendments and modifications
In this section, insert provisions allowing modifications and amendments to be made to your Operating Agreement. However, the Mississippi Limited Liability Company Act states that without this, amendments can still be made, provided that all members approve of the changes. Still, inserting provisions allowing for modifications simply makes updating your Operating Agreement easier.
Guidelines for dissolution
Lastly, your Operating Agreement has to include guidelines for closing the LLC. There are multiple reasons why an LLC can be dissolved, including court orders and the untimely passing of a member. Providing step-by-step instructions in this part simplifies the process so that outstanding debts are settled, and remaining assets are liquidated.
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.
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How Much Is A Mississippi LLC Operating Agreement?
LLC Operating Agreements in Mississippi technically cost nothing, especially if you prepare them yourself. The state also does not require you to file it, meaning you won’t pay any filing fees associated with it. Getting professional help, however, can cost you up to $2,500, depending on the lawyers you hire and the size of your LLC.
Frequently asked questions
Single-member LLCs are not required to file Operating Agreements with the state of Mississippi to be registered. However, they will need the document when they start doing business because it provides them with many benefits, particularly reinforced asset protection.
Yes, but only if you insert provisions allowing amendments and modifications to it. The provision will let you update the document as necessary so that it stays useful.