How To Form An Operating Agreement

Remember that your Operating Agreement is your company’s handbook. The document should be able to provide enough information and instructions for every concern your LLC has. Research the best business practices for your industry, and consider what kind of issues and internal processes your company might have in the foreseeable future. 

You can use the Wyoming Limited Liability Company Act as the basis for the provisions you will include in your Operating Agreement, then tweak them to suit your memberships’ preferences.

Your LLC information

Start by providing information used to identify your LLC, specifically its name and its registered business address. This part proves that the Operating Agreement was made for and used by your company. You also need to provide details about your registered agent, particularly their name and address. 

Your business purpose and duration

Next, specify the purposes for your LLC’s existence, as well as its planned duration. LLCs can be dissolved for a number of reasons. If you intend to let the company continue doing business after it meets its business goals, indicate that in your Operating Agreement.

Your LLC’s membership

In this section, you need to provide details about your LLC’s membership, including those that are used to identify them. You must also specify their contributions and share in the company’s revenues. 

Your Management Structure

After that, indicate how your LLC wants to be managed. There are two management types:

Member-managed

Member-managed LLCs are run by members themselves. They are actively involved in the company’s day-to-day activities and do not need to appoint a manager for the task.

Manager-managed

Members in manager-managed LLCs entrust the daily operations of the company to a manager they have appointed for the role. The manager/s does not need to become a member/s but has full authority to make routine decisions so the business can continue. However, major decisions affecting the entire LLC are left to the members.

After specifying your management type, you must then describe their roles and responsibilities. This sets limits on the authority every individual member holds and properly defines the expectations each one has to meet. By thoroughly describing these roles and responsibilities, you can prevent potential abuses and misunderstandings.

Guidelines for scheduling and conducting meetings

Your business needs to hold meetings from time to time to discuss company matters. These include providing updates to all members, talking about specific issues and how to solve them, and so on. 

Your LLC needs to have a uniform way of organizing, scheduling, and conducting meetings. As such, make sure to create guidelines for the following and put them here:

• Organizing meetings
• Informing members about upcoming meetings
• Rescheduling meetings, if necessary
• Conducting meetings
• Process for taking the minutes of every meeting

Guidelines for voting

Every member has the right to participate in company-wide decision-making, and those who approve or disapprove of certain decisions can make their intentions or thoughts known during special voting sessions. As such, your Operating Agreement also has to have guidelines for voting. 

These sessions can be scheduled and conducted the same way meetings are handled, except that they are primarily held for decision-making purposes. 

Guidelines for profit and loss distribution

Profits and losses are typically distributed according to interest shares, but you can change things according to your preferences. Be as detailed as possible when creating the guidelines so that you can avoid potential disputes about this in the future.

Limitation of liability and indemnification

In this section, describe the separation between the LLC and its members, reinforcing the limited liability status you enjoy from the business structure. Provisions for reimbursing members who spend personal funds on behalf of the company should also be placed here.

Guidelines for solving disputes

Arguments and conflicts can happen at any time in your LLC. And when they do, they negatively affect the business and put its owners at a disadvantage. Including guidelines and instructions for resolving disputes in your company empowers everyone to defuse tension and solve problems, preventing members from causing more issues in the long run.

When creating these guidelines, make sure to prioritize steps to solving them internally among affected parties first. Then, follow this up with instructions involving the membership (in case the issue isn’t resolved the first time). Lastly, include guidelines on when the company can seek help from external mediators.

Provisions for amendments and modifications

Next, your Operating Agreement has to be modified from time to time so that it can keep up with changes in your company. To do this, you need to first include provisions allowing amendments and modifications to be made to the document. Doing this allows you to keep updating the Operating Agreement so that it stays relevant to your LLC, no matter who the members are.

Severability clause

You will also need to include a severability clause in your Operating Agreement. This clause allows you to discard or remove provisions that have been deemed illegal or unenforceable for certain reasons, including court orders. The remaining provisions will continue to stay in effect until they are modified or removed as well. This clause will be helpful in the event that changes occur to your company or if you have unintentionally included a provision that is contrary to Wyoming state laws. 

For example, Wyoming laws allow your LLC to sue and be sued in its name, particularly for reasons directly affecting the company. This means it has to be the one facing lawsuits for its offenses. If your Operating Agreement contains provisions allowing customers to sue a specific member—and not the LLC—for the offense, the severability clause can remove this because it goes against state laws.

Guidelines for dissolution and winding up

Lastly, you also need to include guidelines for dissolution so that your company knows what to do when it is shut down. These guidelines should explain the triggers that could cause the LLC to be dissolved, provide instructions for the closure process, and also tell members how to settle all remaining concerns before the company is closed completely. Details about the liquidation of remaining assets and the consequential distribution of proceeds should be discussed as well.