What Is An LLC Operating Agreement?
An Operating Agreement is an internal document that serves as a roadmap and blueprint for an LLC’s functions and operations. It outlines the company’s purposes and provides guidelines on how things should be done in the business. The document also protects members, helps the company focus on its goals, and allows the LLC to establish itself to attract investors.
Does Missouri require all LLCs to have an Operating Agreement?
The state of Missouri does not require LLCs to submit Operating Agreements before doing business. However, the government does encourage you to create one for your company. According to section 347.081 of the Missouri Limited Liability Company Act. Section 347.015, Operating Agreements can be oral or written, but we recommend that you put it all in writing so that everyone can have a physical copy of the document.
What Are The Advantages Of An Operating Agreement In Missouri?
An Operating Agreement provides your Missouri LLC with several advantages. Here’s a quick look at them:
Better control over your LLC
First, your Operating Agreement allows you to run your business according to your preferences, provided the provisions you include in it are “not inconsistent with (Missouri) law.” Without this document, your LLC will automatically be governed by the state’s provisions for businesses. While running your business according to default laws won’t put you at a huge disadvantage, being able to run it in a way that suits your preferences makes it easier for you.
Reinforced limited liability status
Your Operating Agreement acts as a document formally separating your LLC from its members. This establishes everyone’s limited liability status and protects your personal assets (such as homes and other possessions under their name) from being used as collateral for the company’s debts and other obligations. Single-member LLCs enjoy this protection the most.
Simplified business purposes and procedures
Your Operating Agreement simplifies your business. It clearly states your company’s goals and offers solutions for common issues, making it easier to run your LLC. You won’t need to constantly remember your company’s objectives because they’re all laid out in the document.
Better credibility among potential investors
An Operating Agreement can also help you get investment should you decide to get outside funding for your business. This document can present information about how your company manages its operations and handles its finances, which are crucial to winning investors over. Missouri investors normally look for businesses with a good potential for quick and high returns. They also look for companies with trustworthy management and accounting systems.
Better dispute prevention and resolution
Lastly, the details listed in an Operating Agreement can minimize confusion and reduce the risk of internal disputes. If conflicts do arise, the document provides guidelines on how to resolve them peacefully, ensuring a harmonious and efficient working environment among members.
Advanced planning for succession
An Operating Agreement can help your LLC plan for succession in the future. You can include guidelines to provide instructions on what to do when a member withdraws their membership for any reason, including retirement or when they pass away. This way, your LLC will be able to transfer interests or add new members to the company, allowing the business to continue.
Create a customized operating
What Are The Limitations Of An Operating Agreement In Missouri?
While your Operating Agreement brings many benefits to your LLC, it has some limitations that you need to know so you can maximize its use. Here are some of them:
Operating Agreements are difficult to make
First, an Operating Agreement must cover all aspects of your LLC. As such, you need to spend a lot of time and effort to make sure your Operating Agreement is comprehensive enough to contain provisions for all possible concerns your company might have. You can always hire a lawyer to help, of course, but it’s a cost you will have to add to your expenses.
Operating Agreements need to be updated frequently
Next, your Operating Agreement needs to be updated whenever changes happen in your LLC. This is so that it can reflect your company’s current details and stay relevant. However, the process of making modifications or amendments to the agreement can be somewhat tedious. Still, it’s an important step you can’t skip once you have this document in place.
Operating Agreements do not have control over everything
Your Operating Agreement allows you to have better control over your LLC. However, it doesn’t give you control over unforeseen circumstances and external factors. All it can do is help you prepare for potentially problematic situations and deal with them when they occur.
Operating Agreements cannot allow you to violate Missouri state laws
While your Operating Agreement allows you to customize how your business is run, all of the provisions included in it should comply with Missouri’s laws. Simply put, the document lets you run your business properly but does not allow you to break any existing rules and regulations enforced by the state.
Operating Agreements can still be violated
Lastly, remember that while your Operating Agreement is binding and can be used to prosecute those who put your LLC and/or certain members at a disadvantage, it is still a document that can be bypassed if it is not written well. To prevent this from happening, make sure to create a comprehensive Operating Agreement, have it reviewed by a professional, and make everyone sign it as proof of their agreement to everything written in the document.
What Should You Include In A Missouri LLC Operating Agreement?
Your Operating Agreement must cover all the bases when it comes to your business. This means it must be able to provide information that can identify your LLC and its members and also specify the purposes for which the company was formed.
The document must also contain guidelines and instructions regarding every aspect of the business–from handling membership concerns to how financial transactions are accounted for to solving disputes that may arise during normal business operations to finally closing the business after it achieves its goals or gets ordered to shut down by the court.
To ensure that your LLC Operating Agreement becomes comprehensive, you must consider all the possible concerns and issues your company may face. This means reading up on the best practices in your industry, among other things.
How To Form An Operating Agreement
Now, let’s proceed to making that Operating Agreement for your LLC. You can create your own by following our tips below, or you can hire a lawyer to draft one for you. We suggest trying it out yourself first if you have the time, then just make a legal professional review it for any loopholes and other amendments. It might help you save on costs.
Plus, and we can’t emphasize it enough, before starting, make sure to read the Missouri Limited Liability Act for more information on how the state would govern your LLC using its default laws. You can use this as a basis for the provisions you’ll be making in your Operating Agreement.
Details about your LLC
Start by providing information about your LLC, including the name and address of your registered agent. The information you provide in this section proves that the Operating Agreement is used by your company.
Your LLC’s business purposes
Next, include a section that explains the reason for your LLC’s existence. These will serve as your company’s mission and vision, leading it toward a clearer direction. You must also specify your LLC’s intended duration in this section. If you want your company to continue doing business after it achieves its initial purposes, indicate that here, too.
Information about the LLC’s members
After that, you must provide information about your LLC’s members. This includes their name and address, as well as their initial capital contributions and their interest in the company. This section will prove the identity and ownership of every member involved in your business.
Guidelines for membership concerns
In this section, provide guidelines or instructions for handling concerns related to your membership. These include instructions for adding new members, transferring membership interests, as well as withdrawing from the company. If your LLC allows withdrawals from its membership, you need to write down the consequences of leaving.
Your LLC’s management structure
After that, you must specify your LLC’s management structure or how your company wants to be managed. There are two structures for LLCs: member-managed and manager-managed.
Member-managed LLCs are operated by the members themselves, where you take on more active roles in the daily management of the company. Meanwhile, a manager-managed LLC is run by managers that you have appointed for the task. They are responsible for the daily activities of the business. In this setup, the members are only involved when they have to make company-wide decisions.
After indicating your LLC’s management structure, include a detailed description of everyone’s roles and responsibilities inside the company. This limits the tasks each member is assigned to do. It also sets expectations so that each person knows what to aim for when working.
Guidelines for meetings and voting
In this section, provide guidelines for your company’s procedures regarding meetings and voting. Include specific instructions on how to organize and schedule meetings, notify all members about them, and conduct meetings while someone takes minutes.
Your accounting system
After that, provide a detailed description of your company’s accounting system. This includes your processes for monitoring cash flow and financial transactions, your record-keeping methods, and how you create reports to be presented during meetings.
This section is very important as it provides your LLC with clarity on how to handle finances, helping you avoid misunderstandings or disputes related to profits. Investors will also look at this section to determine whether your company is trustworthy or not.
Details regarding the distribution of profits and losses
Next, provide a detailed set of instructions for the distribution of profits and losses among all members. These are usually divided and distributed according to interest, but you can tweak that in your Operating Agreement. Be as detailed as possible so that all potential confusion with regard to the matter is dealt with before it happens.
Guidelines on handling disputes
In this section, you need to provide specific and detailed instructions on how to resolve disputes that arise in the company. The instructions provided in this part of your Operating Agreement should look like this:
- Prioritize solving the dispute between the affected parties.
- Next, bring to the attention of the membership so that everyone can help defuse the situation.
- If all efforts to resolve the issue aren’t working, then your company can hire external mediators to help settle the issue and solve the problem.
Amendments and severability
You must also include provisions allowing you to amend or modify your Operating Agreement. This is so that you can continually update the document as changes occur to your business.
Then, don’t forget to add a severability clause. This is so that you will be able to remove provisions that have been deemed illegal or unenforceable by the court—it’ll be helpful in the event that your LLC achieves its initial purpose but does not dissolve and is sold to new members. Instead of having to create a new Operating Agreement, all the new members need to do is remove older provisions that won’t have any benefit to the existing business.
Guidelines for dissolution
Lastly, make sure to provide clear and complete instructions on how your LLC handles dissolution. There are several reasons for your company to get dissolved, but regardless of the reason, your business has to know what to do when it happens so that debts do not remain unpaid and the remaining assets are liquidated and distributed to all members. Thus, provide clear and complete instructions on your LLC’s dissolution process.
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 Missouri LLC Operating Agreement?
Operating Agreements in Missouri do not cost anything if you make them personally. You can follow our tips above or download free templates on the internet so that you won’t spend much. If creating your own Operating Template becomes too difficult or confusing, you can hire a lawyer to help you. In Missouri, expect their service to be anywhere between $500 to $800.
Frequently asked questions
No. Operating Agreements do not expire. They typically remain valid for as long as the LLC they were made for continues to do business and the provisions in it are updated as necessary.
No, and yes. The state of Missouri does not require LLCs, both single-member and multi-member LLCs, to submit their Operating Agreements. However, the document contains crucial information about your business, particularly what it is about, who its members are, and how it does things.
Owners of single-member LLCs benefit much from an Operating Agreement even if there’s no one else who will sign it. The document helps reinforce the company’s limited liability status and protects the sole member’s personal assets. It also helps establish a uniform way of doing things so that if the LLC hires a manager or workers, there’s a guide for them to follow. Lastly, if you are a sole member who decides to sell your business or plan to expand it in the future, we highly recommend you draft an Operating Agreement to help you in the process.
Yes, as long as you inserted provisions allowing you to change the details in your Operating Agreement. Proposed changes have to be discussed with and get the approval of other members before they can be added to the document and enforced in the company.
No. Your LLC’s Articles of Incorporation and Operating Agreement are two documents that serve different purposes. The Articles of Incorporation is a document you submit to the Missouri Secretary of State while forming your LLC. It contains all the basic information about your company that the state needs to know to register your business. It’s a government requirement.
An Operating Agreement, on the other hand, is an internal document. It contains in-depth information about your company and its members and is used as a handbook of your LLC’s business operations. The state does not require your company to have one but strongly encourages you to have one so you can run your business properly.