[COMPANY NAME] LLC

OPERATING AGREEMENT

[DATE]

TABLE OF CONTENTS

1.  Organization………………………………………………………………………………………………..3

2.  Definitions…………………………………………………………………………………………………..4

3.  Capitalization and Financing…………………………………………………………………………4

4.  Allocation of Net Income and Net Loss…………………………………………………………..4

5.  Distributions………………………………………………………………………………………………..5

6.  Company Expenses……………………………………………………………………………………….5

7.  Authority and Responsibilities of the Members………………………………………………..5

8.  Assignment of the Members’ Interest……………………………………………………………..7

9.  Records, Audits and Reports………………………………………………………………………….7

10.  Dissolution and Termination of the Company……………………………………………….8

11.  Miscellaneous……………………………………………………………………………………………..9

 

OPERATING AGREEMENT

OF

[COMPANY NAME]

A [STATE] LIMITED LIABILITY COMPANY

This Operating Agreement (as the same may be amended, restated or otherwise modified from time to time, this “Agreement”), effective [DATE], is entered into by [INSERT NAMES OF ALL PARTIES] (the “Members”), as the Members of [COMPANY NAME] LLC (the “Company”), pursuant to the Act (as such term is defined below) on the following terms and conditions:

PandaTip: This is a simple Operating Agreement suitable for a member-managed LLC. A manager-managed LLC would require a slightly different agreement. Additionally, keep in mind that a “Member” refers to an owner of the company.

1.  Organization.

1.1 Formation. On [DATE OF FORMATION], the articles of organization of the Company (“Articles of Organization”) were filed in the office of the Secretary of State of [STATE] in accordance with and pursuant to the Act.

1.2 Name and Place of Business. The name of the Company shall be [COMPANY NAME] LLC, and its principal place of business shall be [ADDRESS]. The Members may change such name, consistent with the requirements of the Act, change such place of business or establish additional places of business of the Company as the Members may determine to be necessary or desirable.

PandaTip: Here, you state simply the principal office of the company. The Registered Agent is a different question (see below).

1.3 Business and Purpose of the Company. The purpose of the Company is to engage in any lawful act or activity for which a limited liability company may be organized under the Act.

PandaTip: Most companies will state a very general purpose and that is advisable unless there is in fact a very specific purpose for which you start your company.

1.4 Term. The term of this Agreement shall be until the Company is dissolved as provided in this Agreement.

PandaTip: The Operating Agreement is the governing document that sets the framework of the rules under which your company is to operate. Thus, it is in effect until the company is dissolved.

1.5 Required Filings. The Members shall execute, acknowledge, file, record and/or publish such certificates and documents as may be required by this Agreement or by law in connection with the formation and operation of the Company.

PandaTip: This section refers mostly to the making of state filings that are required – usually annually, but depending on the state in which the company is organized.

1.6 Registered Office and Registered Agent. The Company’s initial registered office and initial registered agent shall be as provided in the Articles of Organization. The registered office and registered agent may be changed from time to time by the Members by filing the address of the new registered office and/or the name of the new registered agent in accordance with the Act.

PandaTip: Every company must have a registered agent – which is someone/a company that is designated to receive service of process in the state on behalf of the company. In other words, if the company gets sued, it can’t hide and escape being served.

2.  Definitions.

The following capitalized terms are intended to have the meaning set forth below:

“Act” shall mean the [STATE LIMITED LIABILITY COMPANY LAW], as the same may be amended from time to time.

“Affiliate” shall mean (i) any person directly or indirectly controlling, controlled by or under common control with another person; (ii) a person owning or controlling 10% or more of the outstanding voting securities of such other person; (iii) any officer, director or partner of such other person; and (iv) if such person is an officer, director or partner, any company for which such person acts in any capacity. The term “person” shall include any natural person, corporation, partnership, trust, unincorporated association or other legal entity.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

“Membership Interest” shall mean the Member’s ownership interest in the Company.

3.  Capitalization and Financing.

Members shall make an initial capital contribution of $[DOLLAR AMOUNT]. Members may, but shall have no obligation to, make additional capital contributions.

PandaTip: This section defines the amount of money each founder must put into the company at formation.

4.  Allocation of Net Income and Net Loss.

For each fiscal year, the net income and net loss of the Company shall be allocated to the Members in proportion to each Member’s Membership Interest, as described on Exhibit A.

PandaTip: Allocation of profits and losses can be divided any way you want, but the most common way is in proportion to ownership.

5.  Distributions.

Distributions shall be made to the Members at the times and in the aggregate amounts determined by the Members.

PandaTip: Members have discretion to determine how and when distributions are made to Members.

6.  Company Expenses.

The Company shall pay directly, or reimburse the Members, as the case may be, for all of the costs and expenses of the Company’s operations.

PandaTip: This section gives the Members a right of reimbursement for all expenses they make personally on behalf of the Company.

7.  Authority and Responsibilities of the Members.

7.1 Management. The business and affairs of the Company shall be managed by the Members. The Members shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company’s business. The Members may act by written consent.

PandaTip: This section gives general powers to the members as a whole. In a manager-managed LLC’s Operating Agreement, these powers would be vested in the Manager/Managers.

7.2 Members Authority. The Members shall have all authority, rights and powers conferred by law and those required or appropriate to the management of the Company’s business, which, by way of illustration but not by way of limitation, shall include the right, authority and power to cause the Company to:

7.2.1 Acquire, hold, develop, lease, rent, operate, sell, exchange, subdivide and otherwise dispose of the Company’s property;

7.2.2 Borrow money on such terms and in such amounts as the Members deems to be in the best interest of the Company;

7.2.3 To pledge or mortgage or subject the Company’s property to any security device, to obtain replacements of any mortgage or other security device and to prepay, in whole or in part, refinance, increase, modify, consolidate, or extend any mortgage or other security device, all on such terms as the Members deems to be in the best interest of the Company;

7.2.4 Enter into such contracts and agreements as the Members determines to be reasonably necessary or appropriate in connection with the Company’s business and purpose (including contracts with Affiliates of the Members), and any contract of insurance that the Members deems necessary or appropriate for the protection of the Company and the Members, including errors and omissions insurance, for the conservation of Company assets, or for any purpose convenient or beneficial to the Company;

7.2.5 Employ persons, who may be Affiliates of the Members, in the operation and management of the business of the Company;

7.2.6 Prepare or cause to be prepared reports, statements, and other relevant information for distribution to the Members;

7.2.7 Open accounts and deposits and maintain funds in the name of the Company in banks, savings and loan associations, “money market” mutual funds and other instruments as the Members may deem in its discretion to be necessary or desirable;

7.2.8 Make or revoke any of the elections referred to in the Code;

7.2.9 Select as its accounting year a calendar or fiscal year as may be approved by the Internal Revenue Service;

7.2.10 Determine the appropriate accounting method or methods to be used by the Company;

7.2.11 Require in any Company contract that the Members shall not have any personal liability, but that the person or entity contracting with the Company is to look solely to the Company and its assets for satisfaction;

7.2.12 Lease personal property for use by the Company;

7.2.13 Establish reserves from income in such amounts as the Members may deem appropriate;

7.2.14 Initiate legal actions, settle legal actions and defend legal actions;

7.2.15 Admit itself as a Members; and

7.2.16 Execute, acknowledge and deliver any and all instruments to effectuate the foregoing and take all such actions in connection therewith as the Members may deem necessary or appropriate. Any and all documents or instruments may be executed on behalf and in the name of the Company by the Members.

PandaTip: If Section 7.1 lays out the general powers of the Members to manage the Company, this section describes a number of specific powers that they have. You may want to add or subtract to/from this list based on the specific context of the operation of your company.

7.3 Tax Matters Member. [NAME] is hereby appointed to act as the “tax matters partner” for the purposes of the Code.

PandaTip: This section appoints one of the Members to be the person responsible for all things related to the Company’s taxes.

7.4 Indemnification of Members. The Members, its shareholders, Affiliates, officers, directors, partners, employees, agents and assigns (collectively, the “Covered Persons”), shall not be liable for, and shall be indemnified and held harmless (to the extent of the Company’s assets) from, any loss or damage incurred by them, the Company or the Members in connection with the business of the Company, including costs and reasonable attorneys’ fees and any amounts expended in the settlement of any claims of loss or damage resulting from any act or omission performed or omitted.

PandaTip: This is an important section whereby the Members all agree that the Company will cover all losses due to actions taken on behalf of the Company (i.e., if they get personally sued for something they did on behalf of the Company). This section, however, would not cover any fraudulent activity or intentionally bad act (e.g., assault).

8.  Assignment of the Members’ Interest.

The Members may sell, assign, hypothecate, encumber or otherwise transfer all or any part of its interest in the Company only with the written consent of a majority of the Membership Interests.

PandaTip: Requiring that anyone planning to transfer or sell their interest get the consent of a majority of the Membership Interests protects the remaining members from being stuck with a partner that would not benefit the business.

9.  Records, Audits and Reports.

The Company shall maintain at its principal office the Company’s records and accounts of all operations and expenditures of the Company including the following:

9.1 The full name and last known business or resident address of the Members, together with the capital contribution of the Members;

9.2 A copy of the Articles of Organization and all amendments thereto, together with any powers of attorney pursuant to which the Articles of Organization or any amendments thereto were executed;

9.3 Copies of the Company’s Federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years;

9.4 Copies of this Agreement and any amendments thereto together with any powers of attorney pursuant to which any written accounting or any amendments thereto were executed;

9.5 Copies of the financial statements of the Company, if any, for the six most recent years; and

9.6 The Company’s books and records as they relate to the internal affairs of the Company for at least the current and past four fiscal years.

10.  Dissolution and Termination of the Company.

10.1 Dissolution and Termination. The Company shall be dissolved, shall terminate and its assets shall be disposed of, and its affairs wound up upon a determination by a majority of the Membership Interests to terminate the Company.

PandaTip: This section states that upon a majority vote of the Membership Interests in the Company, the Members may elect to dissolve the Company and distribute the assets according to Section 10.3.

10.2 Certificate of Dissolution and Cancellation. As soon as possible following a determination by the Members to terminate the Company, the Members shall execute a Certificate of Dissolution in such form as shall be prescribed by the California Secretary of State and shall file the Certificate of Dissolution as required by the Act. Upon the completion of the winding up of the affairs of the Company, the Members shall file a Certificate of Cancellation of Articles of Organization in accordance with the Act.

10.3 Liquidation of Assets. Upon a dissolution and termination of the Company, the Members shall take full account of the Company’s assets and liabilities, shall liquidate the assets as promptly as is consistent with obtaining the fair market value thereof, and shall apply and distribute the proceeds therefrom in the following order:

10.3.1 To the payment of creditors of the Company, including the Members, but excluding secured creditors whose obligations will be assumed or otherwise transferred on the liquidation of Company assets;

10.3.2 To the setting up of any reserves as required by law for any contingent liabilities or obligations of the Company; provided, however, that said reserves shall be deposited with a bank or trust company in escrow at interest for the purpose of disbursing such reserves for the payment of any of the aforementioned contingencies and, at the expiration of a reasonable period, for the purpose of distributing the balance remaining in accordance with the remaining provisions of this Section 10.3; and

10.3.3 Any remaining amount to the Members.

PandaTip: Section 10.3 governs the order in which assets will be allocated upon dissolution.

11.  Miscellaneous.

11.1 Successors and Assigns. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the successors, assigns and transferees of the Members.

11.2 Severability. In the event any sentence or Section of this Agreement is declared by a court of competent jurisdiction to be void, such sentence or Section shall be deemed severed from the remainder of this Agreement and the balance of this Agreement shall remain in full force and effect.

11.3 Notices. All notices under this Agreement shall be in writing and shall be given to the Members by personal service or by mail, posted to the address maintained by the Company for the Members or at such other address as the Members may specify in writing.

11.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of [STATE].

11.5 Venue. Any action, suit, or proceeding relating to or arising out of this Agreement shall be brought only in a court of competent jurisdiction located in [STATE].

11.6 Integrated and Binding Agreement. This Agreement contains the entire understanding and agreement of the Members.

IN WITNESS WHEREOF, the undersigned has set its hands to this Agreement as of the date first set forth in the preamble.

MEMBERS:

______________________

[NAME], Member

______________________

[NAME], Member

PandaTip: Insert a signature line for each initial Member.

 

EXHIBIT A – MEMBERS SCHEDULE

Name

Address

Membership Interest

PandaTip: Here you list the name, address, and ownership percentage of each Member.

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