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Alabama LLC Operating Agreements – What Are They And How Do You Get Them?
The operating agreement is a necessary, legally binding document that explains the procedures of operation as well as the ownership structure of a Alabama limited liability company (or LLC).
There are several topics that an operating agreement is required to expand on, whether your LLC is multi- or single-member. It may seem like certain requirements don’t feel necessary if you’re running a single-member LLC; however, even those should be included just to make sure you’re complete and legally compliant.
Organization – This addresses a number of topics, including who makes up the LLC, when it first came into being, and how ownership is divided between its members. This is particularly important for multi-member LLCs, which may give each member equal ownership over the LLC or may divide the company up into “units” of different sizes.
Management And Voting – This layout how the LLC will be managed. You may choose to vote on issues with all the members of the LLC, or you may give that power to a single manager that has been appointed. As with ownership, you can also choose to give every member a single vote, or you can split things up in such a way that gives less voting power to some members and more to others.
Capital Contributions – This makes clear how much money has been invested into the LLC by each member. It also provides information on how you plan to raise any necessary additional money down the line.
Distribution – In this part of the operating agreement, you have to explain how any future profit or losses will be split between the different members of the LLC. In most cases, profits are distributed evenly between all members. However, if for any reason you want things to be split in a different way, it should be clearly laid out here.
Membership Structure Changes – One important part of an LLC operating agreement is showing that you have a plan for any future contingencies. That includes what happens if a member chooses to exit the company and must be replaced or have their role shifted to someone else. This should be spelled out in the clearest possible detail.
Dissolution – Finally, the operating agreement must have a plan in place for the possibility that the LLC members decide to shut down (or “dissolve”) the business. No one wants to think about how things might end when they’re starting an LLC, but it’s vital to have a plan in place for that worst-case scenario.
Why Should I Have An LLC Operating Agreement In Alabama?
Whatever the size or scope of your LLC, if you’re starting one in Alabama, you should absolutely have an operating agreement. There are many reasons why this is an essential part of starting any new business.
First and foremost, the state of Alabama itself strongly recommends doing so. The Alabama Business Code says that an operating agreement is a “highly encouraged” part of any business within the state.
An operating agreement can play a key role in making sure all members of an LLC are on the same page. The agreement forces you and all other LLC members to clearly lay out all the nitty-gritty details of the company’s operation, which means you should be able to avoid future fights over differing opinions on how things should be done.
An operating agreement is also key to maintaining the limited liability status for your company. If you run a single-member LLC, you may not feel like an operating agreement matters much, but it will help people take your business more seriously and will make sure that your company is properly recognized as an LLC by courts and government organizations.
What To Do After Creating An Operating Agreement In Alabama
Unlike other important documents related to a new business, an operating agreement does not need to be filed with the state of Alabama. However, you should make sure to keep your own copy of your operating agreement safe, and that every other member of the LLC has a copy of their own.
Whenever your company undergoes a major event – losing or adding a member or any sort of meaningful organizational shift – you should consider revisiting the operating agreement and amending it as necessary. Make sure to go through the proper procedures to update the agreement, which should be outlined within the agreement itself. Amendments may require voting or approval from all members of the LLC.
FAQ (Frequently Asked Questions)
Is an operating agreement really necessary for my LLC?
We would argue that it is necessary, yes. Alabama does not require that you file an operating agreement, so technically you can run a business without one. However, the state still suggests that you should both have an operating agreement and have it notarized and signed for authenticity.
At one point during the creation of a new business should I create an operating agreement?
You can create an operating agreement at any point during the creation of your LLC. This includes after the LLC is officially formed, though we would suggest doing so before filing for a Certificate of Formation. You also may be required to show that you have an operating agreement before you’ll be allowed to open a business bank account.
Should I file my operating agreement with the state of Alabama?
No, you do not need to file your operating agreement in Alabama. Each individual LLC member should keep a copy of the agreement. The state itself does not require that you file one.