How To Form An Operating Agreement

Before creating your Operating Agreement, do some research on the best practices for LLCs in your industry, specifically in the state of Oklahoma. This will help you foresee potential issues that you might face when your LLC starts running. Additionally, carefully read the Oklahoma Limited Liability Company Act, study its provisions related to LLCs, and use these as the basis for your Operating Agreement. 

You can tweak the guidelines to suit your needs, but make sure to stay within the boundaries of the state’s laws.

When you’re done with all that, you can proceed to draft your Operating Agreement. Follow our tips below if you’re creating it personally, and ask a lawyer to review the document when you’re finished. 

Identifying your LLC

Start by providing information about your LLC, particularly its name and registered address. This will serve as proof that your company is the entity using your Operating Agreement. Make sure to specify the name and address of your registered agent as well since they will be interacting with the state of Oklahoma and receiving legal correspondence on your behalf.

State your LLC’s purposes

Next, specify your LLC’s purposes for existence. This will give your company a direction to follow and goals to strive for. Courts can order the dissolution of your LLC if it fails to move towards accomplishing its objectives, so make sure that your company does its best to achieve them.

Your LLC’s membership

In this section, you will need to provide information about your LLC’s members, particularly their names, addresses, the amount of capital contributions they gave to fund your company, and their respective interests. This serves as your proof of ownership over the business. The details here also serve to clarify the percentage of profits members receive.

Guidelines for membership concerns

After that, you will need to provide instructions for the various concerns related to your LLC’s membership. These guidelines should cover the addition of new members, transferring membership interests, and what to do when a member wants to withdraw from the company. In fact, specify the consequences of doing so.

Management style

Now, indicate how your LLC will be managed. This is important as the structure you choose determines the roles the members play. You have two options here:

• Member-managed: In this setup, the LLC will be operated by members who plan an active role in its daily activities. There is no need to hire a manager for the task. Members personally oversee the company’s operations and make decisions for it.
• Manager-managed: In this setup, the members select and appoint a manager who will oversee the company’s daily operations. They will be given full authority over the LLC’s activities, but major decisions affecting the business will be left to the members.

Member roles and responsibilities

Next, describe the roles and responsibilities the members of your LLC will have. If your LLC is manager-managed, specify the responsibilities of the managers appointed for the task. This will remove any confusion regarding responsibilities, limit the authority of the members/managers to their roles, and set proper expectations for everyone.

Guidelines for meetings and voting

Don’t forget to include guidelines for scheduling and conducting meetings and voting sessions, especially if your LLC is multi-membered. Meetings need to be held regularly to provide updates on your LLC’s progress. On the other hand, voting sessions need to be held as well so that members can participate in the company’s decision-making process. You need to provide instructions on how these can be scheduled and conducted.

Provisions limiting member liabilities

Include provisions describing the separation of your LLC from you and all co-members. This will formally limit your liabilities over your company’s debts and obligations. Courts will honor this part of your Operating Agreement and avoid ordering you to personally pay your LLC’s dues.

Details about your accounting system

After that, include a detailed description of your company’s accounting system. Indicate how your LLC monitors and records all financial transactions and provides reports to all members. Investors will look at this section to determine if your company can be trusted to handle finances with integrity.

Guidelines for handling profits and losses

Provide guidelines for the distribution of profits and losses among members. These are usually distributed according to interest percentages, but you can tweak that to your members’ preferences using an Operating Agreement. Be as detailed as possible to remove confusion and prevent disputes about this matter.

Guidelines for dispute resolution

Next, your Operating Agreement should include a set of guidelines allowing your LLC to effectively resolve internal conflicts. This will allow your company to be as productive as possible. The guidelines must be geared towards resolving disputes internally first—as in between affected parties—before seeking help from external mediators. If your LLC has a reliable dispute resolution mechanic in place, potential investors will take note of it.

Instructions for dissolution

There are many reasons why your company can be dissolved. Regardless of the cause, the dissolution process involves getting consent from all members, notifying suppliers, liquidating remaining assets, and then distributing the proceeds to members. Providing step-by-step instructions in your Operating Agreement helps your LLC close when necessary without leaving unpaid debts.