Multi-member LLC operating agreement

An operating agreement for an LLC with two or more members. Add each member and their share, then download it as a Word file or print it.

State LLC name Effective date

Who runs the LLC The members (member-managed) Managers the members appoint (manager-managed)

Principal office address

Members

Member name Address Contribution Share %

Partnership representative (for IRS audits) The others get first refusal before an interest is sold to an outsider The business may buy the interest of an owner who dies, is incapacitated or goes bankrupt

Anything you leave empty prints as a line to fill in by hand. Nothing you type leaves your browser.

Operating Agreement of ____________________ LLC

A ____________________ limited liability company

This Operating Agreement (this “Agreement”) of ____________________ LLC (the “Company”) is made effective ____________________ (the “Effective Date”) by the persons who sign it as members (each a “Member” and together the “Members”).

Article 1. Formation

1.1 Formation. The Company was formed as a limited liability company under the laws of the State of ____________________ by filing its articles of organization (or certificate of formation) with the state's business filing office.

1.2 The Act. “Act” means the limited liability company law of the State of ____________________, as amended from time to time. Where this Agreement is silent, the Act governs. Where the Act lets an operating agreement change one of its rules, this Agreement controls.

1.3 Name. The Company's name is ____________________ LLC. The Company may also do business under any other name chosen by a Majority Vote of the Members, after filing any assumed-name or fictitious-name registration the law requires.

1.4 Principal office. The Company's principal office is at ____________________, or at any other place chosen by a Majority Vote of the Members.

1.5 Registered agent. The Company's registered agent and registered office in the State of ____________________ are those named in its articles of organization (or certificate of formation), as changed from time to time by a filing with the state.

1.6 Purpose. The Company may carry on any lawful business for which a limited liability company may be formed under the Act.

1.7 Term. The Company began when its formation filing took effect and continues until it is dissolved and its affairs are wound up under Article 7.

Article 2. Members and capital

2.1 Members. The Members, their capital contributions and their percentage interests in the Company (“Percentage Interests”) are listed in Schedule A. The Members will update Schedule A whenever a contribution, transfer or admission changes it.

2.2 Contributions. Each Member has contributed or will contribute the cash, property or services listed for that Member in Schedule A.

2.3 Additional contributions. No Member is required to make an additional contribution. A Member may make one only with the written consent of all Members, who will then agree in writing on any change to the Percentage Interests.

2.4 Capital accounts. The Company keeps a separate capital account for each Member, maintained in accordance with Treasury Regulations section 1.704-1(b)(2)(iv). No Member earns interest on a contribution, and no Member may withdraw a contribution or demand its return except as this Agreement provides.

2.5 Majority Vote. “Majority Vote” means the vote or written consent of Members holding more than half of all Percentage Interests.

2.6 Loans. A Member may lend money to the Company on terms approved by a Majority Vote of the Members. A loan is a debt of the Company, not a capital contribution.

2.7 Limited liability. No Member is personally liable for any debt, obligation or liability of the Company solely because of being a Member. The Company's failure to observe formalities is not a ground for holding any Member personally liable for the Company's obligations.

Article 3. Allocations and distributions

3.1 Profits and losses. The Company's profits and losses for each fiscal year are allocated among the Members in proportion to their Percentage Interests.

3.2 Tax allocations. Items of income, gain, loss, deduction and credit are allocated for tax purposes in the same way, except as section 704(c) of the Internal Revenue Code requires for property contributed by a Member.

3.3 Distributions. The Company distributes available cash at the times and in the amounts decided by a Majority Vote of the Members, in proportion to the Members' Percentage Interests.

3.4 Limit. The Company may not make a distribution that would leave it unable to pay its debts as they become due or that the Act otherwise prohibits.

Article 4. Management

4.1 Management by the Members. The Company is managed by its Members. Each Member is an agent of the Company for carrying on its business in the ordinary course.

4.2 Decisions. Unless this Agreement requires more, the Members decide by Majority Vote.

4.3 Major decisions. The Company may take any of the following actions only with the written consent of all Members:

(a) amending this Agreement or the Company's formation filing;

(b) admitting a new Member;

(d) merging, converting or consolidating the Company with or into another entity;

(e) borrowing money or guaranteeing a debt outside the ordinary course of business; and

(f) dissolving the Company, except as the Act requires.

4.4 Meetings and written consent. Any Member may call a meeting of the Members by giving the others at least five days' notice. The Members may act without a meeting by the written consent, including by email or electronic signature, of Members holding the Percentage Interests needed to approve the action.

4.5 Duties. Each Member owes the Company and the other Members the duties of loyalty and care that the Act imposes, as this Agreement may modify them where the Act allows, and must act in good faith.

4.6 Compensation and expenses. No Member is paid for services to the Company unless the Members approve by Majority Vote. The Company reimburses reasonable expenses incurred on its behalf.

4.7 Indemnification. To the fullest extent the Act allows, the Company indemnifies each Member against any loss, damage, claim or expense, including reasonable legal fees, incurred because of acting in good faith on the Company's behalf, except for gross negligence, willful misconduct, a knowing violation of law or a breach of this Agreement.

Article 5. Taxes, books and records

5.1 Tax classification. The Members intend the Company to be treated as a partnership for federal and state income tax purposes, unless the Members unanimously elect otherwise.

5.2 Partnership representative. ____________________ is designated the Company's “partnership representative” under section 6223 of the Internal Revenue Code. The partnership representative must keep the Members informed of any tax audit or proceeding and may not settle one without a Majority Vote. The Members may replace the partnership representative by Majority Vote.

5.3 Fiscal year. The Company's fiscal year is the calendar year.

5.4 Books and records. The Company keeps complete and accurate books and records at its principal office, including a current list of the Members and their addresses, its formation filing and all amendments, this Agreement, and its tax returns and financial statements for the last three years. Each Member may inspect and copy them at any reasonable time.

5.5 Bank accounts. The Company's money is kept in accounts in the Company's name and is never mixed with any Member's own money.

Article 6. Transfers, new members and withdrawal

6.1 Restrictions on transfer. A Member may not sell, give, assign, pledge or otherwise transfer all or part of a membership interest without the written consent of Members holding a majority of the Percentage Interests held by the other Members. A transfer that breaks this section is void.

6.2 Right of first refusal. Before transferring an interest to anyone other than the Company or another Member under a good-faith offer, a Member must offer it in writing to the other Members on the same price and terms. The other Members may buy it, in proportion to their Percentage Interests or as they otherwise agree, by written notice within 30 days. If they don't buy all of it, the selling Member may transfer the rest to the person who made the offer, on the same price and terms, within the next 60 days, subject to section 6.1.

6.3 Transferees. A person who receives a membership interest becomes a Member only with the written consent of all Members. Until then, the person receives only the allocations and distributions the transferring Member would have received and has no right to vote, manage or inspect records beyond what the Act gives a transferee.

6.4 Withdrawal. A Member may not withdraw from the Company before it is dissolved without the written consent of all other Members.

6.5 New members. A new Member is admitted only with the written consent of all Members and after signing this Agreement or a written joinder to it, with Schedule A updated to show the new Member's contribution and Percentage Interest.

6.6 Death, incapacity or bankruptcy. If a Member dies, is adjudged legally incapacitated or becomes the subject of a bankruptcy proceeding, the Company, or if it declines then the other Members in proportion to their Percentage Interests, may buy that Member's entire interest by written notice within 90 days after learning of the event. The price is the interest's fair market value as agreed by the parties or, failing agreement within 30 days, as set by an independent appraiser chosen by the Company. The price is paid in cash within 60 days after it is set, unless the parties agree in writing on other terms. Until the purchase closes, the holder of the interest has only a transferee's rights.

Article 7. Dissolution

7.1 Events of dissolution. The Company is dissolved only on the first of these to occur:

(a) the written consent of all Members;

(b) the passage of the time the Act allows after the Company stops having any members, unless a member is admitted within that time as the Act provides;

(d) any other event that requires dissolution under the Act despite this Agreement.

7.2 Winding up. After dissolution, the Members wind up the Company's affairs, sell any assets they choose, and file any articles or certificate of dissolution the state requires.

7.3 Order of distribution. The Company's assets are applied in this order:

(a) to creditors, including Members who are creditors, to pay the Company's debts and liabilities;

(b) to any reserves the Members consider reasonably necessary for contingent or unforeseen liabilities; and

(c) to the Members in accordance with their positive capital account balances, after the adjustments for the year in which the liquidation occurs.

Article 8. General provisions

8.1 Amendments. This Agreement may be amended only in a writing signed by all Members.

8.2 Entire agreement. This Agreement, with Schedule A, is the entire agreement about its subject and replaces any earlier agreement, written or spoken, about it.

8.3 Governing law. This Agreement is governed by the laws of the State of ____________________, without regard to its conflict-of-laws rules.

8.4 Severability. If any provision of this Agreement is held invalid or unenforceable, the rest remains in effect, and the provision is enforced to the greatest extent the law allows.

8.5 Binding effect. This Agreement binds and benefits the Members and their heirs, personal representatives, successors and permitted assigns.

8.6 No rights for creditors. Nothing in this Agreement gives any creditor of the Company or of any Member any right or remedy.

8.7 Notices. Notices under this Agreement are given in writing, including by email, to a Member's address in Schedule A or the email address the Member gives the Company.

8.8 Counterparts and electronic signatures. This Agreement may be signed in counterparts, and electronic signatures count as originals.

8.9 Interpretation. Headings are for convenience only. Words in the singular include the plural and the reverse, and “including” means “including without limitation.”

The Members sign this Agreement to be effective on the Effective Date.

______________________________

Member: ____________________

Date: ________________

______________________________

Member: ____________________

Date: ________________

Schedule A. Members

Member and address	Capital contribution	Percentage Interest
____________________	____________________	_______%
____________________	____________________	_______%

As of ____________________.

Why partners need one most

When an LLC has two or more members, its operating agreement settles the questions partners fall out over: who put in what, who gets what share, who decides, and what happens when someone leaves or dies. If the agreement doesn't answer a question, your state's LLC law does. The state's default answers may surprise you, for example by sharing profits or votes differently than you assumed.

What it decides

Shares. Each member's percentage interest, listed in Schedule A with what they contributed. Profits, losses and distributions follow those percentages.
Capital accounts. The LLC tracks each member's capital account under the federal tax rules, so that when it closes, members get back what they're owed in the right order.
Voting. Ordinary decisions pass by a majority of the percentage interests. Major decisions need every member's written consent: amending the agreement, admitting a member, selling all or most of the business, merging, borrowing outside the ordinary course of business and dissolving.
Management. Either every member can act for the LLC, or the members appoint managers who run it and can remove them by majority.
Leaving and buyouts. A member needs the others' consent to sell, the others get first refusal, and the LLC can buy out a member who dies, is incapacitated or goes bankrupt at a fair value set by an appraiser if the parties can't agree.
Taxes. The LLC is taxed as a partnership unless the members agree otherwise, and the agreement names its partnership representative for IRS audits.

Agree on these before you sign

The template asks for the facts. Before you sign, talk through the parts that are easy to skip:

whether anyone gets paid for working in the business, beyond their share of profits;
how much cash the LLC keeps before it pays out profits;
what happens if a member stops working in the business but keeps their share;
whether anyone may compete with the LLC or work on the side.

Write any extra terms into the agreement before every member signs it.

After you sign

Every member signs and dates the agreement, and the LLC keeps the signed copy with its records. You don't file it with the state. When a member joins or leaves, or shares change, update Schedule A and have every member sign the change.

Common questions

Do the percentage interests have to match what each member put in?

No. Members can agree on any split, for example when one puts in money and another puts in work. The shares in Schedule A must add up to 100%, and the tool warns you if they don't. If profits should be shared differently from votes, have a lawyer adjust the agreement.

How is a multi-member LLC taxed?

By default, as a partnership. The LLC files a partnership return, Form 1065, and gives each member a Schedule K-1 showing their share of income, which each member reports on their own return. The members can elect corporate tax treatment instead.

What is a partnership representative?

Under the federal partnership audit rules, an LLC taxed as a partnership names a partnership representative, who deals with the IRS if the LLC's return is audited. The agreement names one, requires them to keep the members informed, and stops them settling an audit without a majority vote.

What happens if a member wants to leave?

Under this agreement, a member can't simply withdraw, and can sell their interest only with the other members' consent, after offering it to them first. A buyer gets the seller's share of profits but doesn't become a member unless everyone agrees.