Is It Time to Revise Your LLC Operating Agreement?

I previously discussed the significance of having an Operating Agreement for Limited Liability Companies (LLCs). Even though it’s not a legal requirement, it’s a crucial document for managing your business in the long run. Think of it as your company’s rulebook, outlining how decisions are made and everyone’s roles and responsibilities. It’s a tool to avoid conflicts and misunderstandings among owners.

Your business will change and evolve over time, and so should your Operating Agreement. Whether you quickly put it together when you started your business or spent hours crafting it with a lawyer, it’s important to keep it updated to reflect these changes.

So, when and how should you modify your LLC’s Operating Agreement? You should consider updating it whenever there’s a significant change in your business. This could be when a new member joins or an existing one leaves, when the timing or percentage allocation of distributions changes, when you inject more capital into the business, when you switch your governance from member-managed to manager-managed (or vice versa), or when you make any other managerial or financial changes that are outlined in the original agreement.

Amending your Operating Agreement is a straightforward process. First, the members need to approve the change, and then you need to document it. You don’t need to file these amendments with the state; just keep them with your Operating Agreement as an internal document.

Your Operating Agreement should specify the procedure for making changes. It might require unanimous consent, a super majority, or just a majority. If you didn’t define the procedure in your Operating Agreement, you’ll need to follow your state’s laws. Some states require all members to approve the amendment, while others just require a majority.

Creating your amendment is simple. Write a document that states it’s modifying the existing Operating Agreement. Then, write out the entire amendment as clearly as possible. It doesn’t need to sound "legal"; it just needs to be easy to understand and leave no room for misinterpretation. Refer specifically to the sections of the original agreement that you’re amending. Have each member (or approving member) sign the amendment.

In addition to amending your Operating Agreement, you may also need to amend your LLC’s Articles of Organization. This is the document you initially filed with the state to form your LLC. You might need to amend it if you officially change your LLC’s name, address, or registered agent.

Keeping your LLC documentation up to date is a simple task that can take just minutes to complete. It’s easy to overlook these administrative duties in the midst of running a growing business, but they’re important steps to staying compliant with the state, as well as avoiding any conflicts, even lawsuits, from members.

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