Operating Agreement

Operating agreement for an LLC outlines how the company will be operated. Operating agreement identifies the roles of members and managers. Identifies who can bind the company in contracts, and longevity of the entity.

This topic will address the following questions:

Are Operating Agreements filed with the State of Illinois?
What do Operating Agreements do?
Who prepares these documents?
LLC Operating Agreements

Operating Agreement Background:

Operating agreement for an LLC identifies your company’s structure such as a corporation’s bylaws dictate how that corporation will be operated. The operating Agreement (also referred to as a limited liability company agreement) regulates the affairs of the company and the conduct of its business. An operating agreement also governs relations among the members or managers and the company.

Operating agreement can be as structured, or as unstructured, as the members determine necessary. If you are the sole member, your operating agreement may not be as in-depth as those of a company with multiple members where defining parameters to memberships would be more essential and could alleviate any potential for misunderstandings.

The State statutes, in this case, are pretty lax about what should be included in the operating agreement; however, the statutes do outline those items that must not be present in any operating agreement.

Operating Agreement May Not:

Restrict a right to information or access to records;
Vary the right to expel a member (specified by statute);
Vary the requirement to wind up the LLC’s business (as specified by statute);
Restrict rights of a person, other than a manager, member and transferee of the member’s distributional interests;
Restrict the power of a member to dissociate (specified by statute);
Eliminate or reduce a member’s fiduciary duties unless specific types or categories of activities that do not violate these duties are identified in the agreement or the operating agreement specifies the number or percentage of members or disinterested managers that may authorize or ratify a specific act or transaction that would otherwise violate these duties;
Eliminate or reduce the obligation of good faith and fair dealing; the operating agreement may determine the standards by which the performance of the obligation is to be measured if the standards are not manifestly unreasonable.

Operating Agreement - Recommended Content

Name; Formation:

State the company name, formation date, and formation state of Illinois;

Purpose:

The operating agreement must provide the purpose clause used in the articles of organization. this is typically the statutory language required by the State along with any personalized detail of the company’s activities.

Offices:

List the principal office of the limited liability company (you may want to generalize this information to avoid having to amend your operating agreement when you change locations (i.e., the principal office shall be located at such place or places inside or outside of the State of Illinois as the member (manager) may designate from time to time); and

List the initial Illinois registered office and Illinois Registered Agent named in the articles of organization. (this too can be generalized to avoid amending the operating agreement (i.e., the registered office of the company required to be maintained in the State of Illinois shall be the office of the initial Illinois registered agent named in the articles of organization as the manager/member may determine from time to time);

Members:

A statement indicating the member(s) name(s) and address(es) and whether or not this list of members can be amended (this can be a generalization with an attached schedule that lists the members names and address along with the initial contribution);

Duration:

Determine if the company’s duration be perpetual or continue until dissolved or terminated;

Management:

Operatiing agreement will specify whether the company will be member managed or manager managed and their respective powers in relation to authorizing various acts, appointing, employing, delegating or contracting with entities or persons for the day-to-day business transactions, and in a manager managed situation, how the manager is elected;

Member Rights / Meetings:

Operating Agreement provides consent of the members/managers which can be defined herein; however, statutes dictate that for certain actions, consent of all of the members is required which includes the following:

Operating Agreement Amendments
the compromise of an obligation to contribute to the company;
the compromise of an obligation of a member to contribute to in violation of the Limited Liability Company Act;
the making of an interim distribution, including the redemption of an interest;
the admission of a new member;
the use of the company’s property to redeem an interest subject to a charging order;
the consent to dissolve the company;
waiver of the right to have the company business wound up and the company terminated;
the sale, lease, exchange, or other disposal of all, or substantially all of the company’s property (merger or acquisition);

Capital Contributions:

Describe what contributions are required to be a member of the company and under what conditions a new member may be admitted;

Assignment of Company Interest:

Determine whether the members can sell, assign, pledge, transfer, or encumber any or all of their interest in the company and if so, what consent is needed to affect this transfer and a statement describing the procedures to do so;

Additional Members:

Will your company allow additional members and what is required of new members (i.e., such as signing a counterpart to the operating agreement, capital contributions, and who has the right to admit additional members);

Distributions:

A description of when and how distributions of cash or other assets of the company will be made, and what factors determine the distributions and the allocations of profit and loss;

Dissolution of the Company:
Spell out under what conditions or occurrences would the company be dissolved;

Continuation of the Company:

Whether the company will continue if a member withdraws and whether the decision to continue after the withdrawal of a member by any remaining members is in writing or by a majority or unanimous consent;

Limitation on Liability:

This is a statement that the company bears the liability and that liability is not an obligation of its members or managers.

Indemnification of Officers, Employees, Managers and Agents:

Identify who this indemnification covers and to what extent, specify authorization by members, managers, legal counsel of contributors, repayment of expenses related to same, insurance, and member notification.

Operating Agreement Amendments:

Specify whether the operating agreement can be amended and by whom and what are the procedures and under what conditions can the agreement be amended;

Governing Law:

This indicates to all the parties of this agreement that the operating agreement is governed by Illinois law and in the case of a legal dispute, Illinois law would be applicable.

Signatures:

Signatures of all of the initial members should be present on the operating agreement.

Operating agreement help: Although operating agreements are not statutorily required, if you have a multi member business, you may want to clarify duties and obligations. This link will guide you to a free online operating agreement template: Illinois LLC Operating Agreement (Free 2023 Template) | LLCU® (llcuniversity.com)

Operating Agreements