How To Form An Operating Agreement

Before working on your Operating Agreement, do some research and study the provisions included in the North Dakota Uniform Limited Liability Company Act. These can be used as the basis for what you need to include in your LLC’s document.

Next, plan what provisions you need to put in your Operating Agreement. If you run a multi-member LLC, gather all the members together and brainstorm so you can cover all the potential issues that your business might face in the future. When you’re ready, you can proceed by following our steps below.

Information about your LLC

Start by providing information used to identify your LLC, such as its name and registered address. Include the name and address of your registered agent since they will be interacting with the state of North Dakota on your behalf.

Also, state the purposes for your LLC’s existence in North Dakota. This section will give your business a direction to pursue. Your company’s actions must be geared towards achieving the purposes indicated here. Courts can order the dissolution of your company if it fails to move toward its goals

Members’ information

After that, provide information about your LLC’s members. Indicate the names and addresses of each member, then specify their respective capital contributions and interest percentages. This part serves as the proof of ownership that courts can check if needed. By specifying interest percentages, you also set expectations on what members will receive from the business.

Management structure

In this section, you need to indicate what kind of management structure your LLC will have. The members of your company can choose whether it will be member-managed or manager-managed, but keep in mind that your choice here directly determines the roles that each member will have.

In member-managed LLCs, for example, the members take an active role in the daily operations and decision-making. Conversely, the members of a manager-managed LLC entrust daily operations to someone appointed for the role.

Member roles

After indicating what kind of management structure you choose, provide a detailed description of the roles and responsibilities of each member/manager. Doing this clarifies expectations and puts limits on the authority given to everyone. This will also remove confusion regarding the workload given to every member or manager.

Guidelines for meetings and voting

Your Operating Agreement must provide guidelines for scheduling and conducting meetings. The members of your LLC can call for meetings to provide routine updates or schedule emergency meetings for more urgent matters. You must also describe how your voting process works since this is how the members can express their approval or disapproval when necessary.

Profits and losses

Next, you must provide guidelines for the distribution of profits and losses among members. These are typically divided and distributed according to interest percentages, but you can tweak that to meet your company’s needs. Make sure to get everyone’s approval with regard to this matter.

Accounting system

After that, provide a detailed description of your company’s accounting system. This should cover how you monitor cashflow, keep records of financial transactions, and provide reports about your company’s finances. Be as detailed as possible so your accounting system becomes transparent and more reliable in the eyes of potential investors and new members.

Guidelines for solving disputes

Include guidelines for resolving disputes that arise during the course of business. The instructions you provide here must focus on solving the issues without needing intervention unless necessary. 

Dissolution and closure

Finally, provide guidelines for closing your LLC properly. There are many reasons why an LLC can be dissolved, but regardless of this, what matters is that your company knows how to close properly. Include step-by-step instructions starting from getting consent from all members to settling remaining debts before closing completely.