Michigan LLC Operating Agreement
Every Michigan LLC business owner should think about having an operating agreement to help safeguard operations. Although it’s not a legal requirement by the state, an operating agreement will establish clear expectations and rules for your LLC while ascertaining your credibility as a legal body.
What Is A Michigan LLC Operating Agreement?
This is a legal document outlining the operating procedures and ownership structure of an LLC.
Whether you’re launching a multi-member or single-member LLC, your operating agreement should cover all these issues. Some of these provisions won’t have any significant bearing on the operations done by a single-member LLC but are essential to be included for legal purposes.
Organization: When the LLC was initially launched, how ownership is distributed, and who its members are. Multi-member LLCs may use an equal member ownership formation or allocate its members various ‘units’ of ownership.
Management & Voting: Whether its members will manage the LLC or a manager will be appointed and how its members will vote when it comes to business issues. Generally, every member gets a single vote, but you may decide to give other members more voting power. To get additional information on how best to manage your LLC, make sure to read our Manager Managed vs Member-Managed guide.
Capital Contributions: This is the total cash every member has put into the business. It can also address how to raise more funds in the future.
Distributions: This is how losses and profits will be disbursed among members. The most frequent solution is distributing the profits evenly. In case you want the funds to be divided differently, it should be stipulated in the operating agreement. To get additional information on LLC ownership, read through our Distributions and Contributions guide.
Changes to Membership Structure: How ownership and roles will be assigned in case a member decides to leave the business. It’s important that you detail the process of replacing and/or buying out a member in the LLC operating agreement.
Dissolution: If it reaches a point where all the LLC members decide not to continue conducting business, officially dissolving it is the best solution. Having a hypothetical process to dissolve your business is an integral aspect of the operating agreement. To find out more about dissolving your Michigan LLC, go through our Michigan LLC Dissolution article.
Do I Need a LLC Operating Agreement in Michigan?
Regardless of the type of Michigan LLC you are launching, drafting an operating agreement is essential. Here are the reasons why:
The state recommends it. As per Michigan’s Business Statutes Section 450.4102(r), each LLC in Michigan can have a written operating agreement governing the company’s operating procedures.
It’ll eliminate conflicts between your partners. If you’re launching a multi-member LLC, drafting an operating agreement will help prevent misunderstandings among team members by establishing clear expectations about each partner’s role and responsibilities.
It assists in preserving your limited liability status. Suppose you’re the owner of a Michigan single-member LLC. In that case, an operating agreement will assist in making sure that your limited liability status is maintained by court officials and adds to your business’s credibility in general.
Do I need an operating agreement?
Yes, you do. While you’re not required to file this document, drafting an operating agreement is the best way to ascertain control of your LLC if there is chaos or a change.
When should I draft my operating agreement?
Although it’s a prudent idea to draft an operating agreement before you file your Articles of Organization, the state doesn’t dissuade Michigan LLCs from creating one after the formation process. It’s important to note that there are banks that will need you to submit this document in order for a business bank account to be opened.
Do I have to file my operating agreement with the state?
No. The LLC members retain the operating agreements. You aren’t required to file this document with the state of Michigan.