How To Form An Operating Agreement

Forming your customized Operating Agreement takes effort. You can read the Wisconsin Uniform Limited Liability Company Law and use its contents as a basis for your Operating Agreement, then customize some details according to your preferences. That way, you avoid inserting provisions that are contrary to law.

Details identifying your LLC and its members

Start by providing information about your LLC and its members. Specifically include the following:

• Your LLC’s name and registered business address
• Your registered agent’s name and address
• The names and addresses of each member of your LLC
• The capital contributions and interest percentages of each member

These details serve as proof of ownership of the LLC. These also provide courts with information about the people involved in the company, including the person acting as your representative when interacting with the state.

Business purposes

Indicate your LLC’s reasons for existence. These will serve as your company’s mission and vision and will be the goals you strive for. Be as detailed as possible. Courts will look at this part to determine if your business really aims to reach these goals or if it should be closed if worse comes to worse.

Guidelines for membership concerns

Your Operating Agreement must contain instructions for every membership concern your LLC might have. These include guidelines for adding new members, transferring membership interests, and withdrawing from the company. Make sure to indicate the consequences of withdrawing from your LLC as well.

Management style

Specify the management structure your LLC has elected to adopt. There are two types to choose from: member-managed, where members are the ones personally running the business, and manager-managed, where the members have taken a step back and entrusted the business operations to an appointed manager. Both types have their advantages and disadvantages. 

For example, member-managed lets you handle the business yourself, allowing you to see what’s happening in real time. On the other hand, a manager-managed company can delegate more menial tasks to other people. Wisconsin state laws indicate that your LLC will be managed by its members unless specified in the Operating Agreement.

Roles and responsibilities

In this section, you must provide detailed descriptions of the roles and responsibilities every member of your LLC may have. This limits members’ authority to what has been assigned to them. It also sets expectations and minimizes risks of disputes and other conflicts from happening.

Profit, loss, and compensation

Your Operating Agreement must indicate in detail how and when the members of the LLC will be compensated. Provisions for reimbursement of those who use personal funds for the sake of the business must also be included. 

Also, include how the LLC divides profits and losses among all members. These are usually distributed according to interest percentages, but you can tweak the shares using your Operating Agreement. Providing clear guidelines in this matter helps prevent financial disputes down the line.

Dispute resolution guidelines

In case disputes do happen, include provisions for it, too. For instance, you can indicate that both parties must prioritize solving problems between themselves before involving the company. You can even prevent outsiders from meddling. There is no one guideline that can help every LLC, so this part is up to you to write.

Amendments and severability

Amendments are meant to update existing provisions so they are up-to-date and reflect the changes your LLC faces. On the other hand, severability refers to a clause allowing you to remove provisions that have been found illegal or unenforceable by the court. Thus, it should be included in your Operating Agreement so that it can stay useful and relevant to your company. 

Dissolution

Lastly, include guidelines for dissolving the LLC. These must include reasons for your company to be dissolved, followed by step-by-step instructions to properly close your company. The state has default rules for dissolution, but inserting specific provisions here means being able to adjust certain things, like the distribution of liquidated assets to members prior to closure.