Operating Agreement For LLC In Nevada
Every business owner in Nevada working with a registered LLC should have an operating agreement to take care of the operations of the business entity.
An operating agreement is not a mandatory obligation from the state, nonetheless, the document provides clear guidelines for your business objectives and also enforces the legal credibility of the entity to its partners and clients.
WHAT IS A LLC OPERATING AGREEMENT IN NEVADA?
An operating agreement is a certification document showing the owners of an LLC, their roles and also defines the work processes of the LLC as a legally-recognized entity.
The following are the topics covered in an operating agreement for both a single-member and multi-member LLC.
Additionally, some of the provisions in the agreement as outlined below may not have much effect on guiding working operations for a single-member LLC but nonetheless are included for the legal conformity.
Organization of the LLC
Here, the issues addressed are:
The date when the LLC was formed and duly registered, the names of the members of the LLC, and how ownership interests have been apportioned to each individual member/owner – sharing ratio.
For multi-member LLC, ownership may be on an equal basis among the members or may be determined based on the number of units apportioned to each member.
Management of the LLC and Voting Powers
Here, the agreement determines how the affairs and operations of the LLC will be managed either by its members or by an appointed party, apportionment of voting powers among members, and the voting process for decision making and building consensus.
Under normal cases, usually during equal ownership of the LLC, each owner/representative member is given a single vote. In other circumstances, some members are allocated more voting powers than others. You can find more information on managing your LLC on our Member-Managed vs Manager Managed guide
Contribution Ratio of Capital Held By the LLC
In this part, the agreement presents how much money each member of the LLC has contributed to setting up and running the business operations of the LLC.
The capital contributed may be in the form of land or equipment of given market value and is not necessarily money in liquid form.
This section of the agreement also provides a method and any necessary procedures for incorporating other capital contributors in the future if the need for more capital arises in the business.
This part describes the allocation formula for the profits of the business to the members/owners of the LLC.
The common formula for profit distribution is where every member is allocated a percentage equal to their contribution of the capital held by the LLC. That is, if member A contributed 30% of the cost to set up the business, then they are allocated 30% of the profits and so on.
If the LLC has adopted a different profit sharing ratio, then it must also be captured clearly in this section of the operating agreement. You can find more information on the basics of LLC ownership on our Contributions and Distributions guide.
Changes to the Membership Structure of the LLC
This section provides how changes in the ownership of the LLC will take place in case one member of the LLC leaves the business. This section determines how the roles and ownership interests of the exiting member will be absorbed or transferred to another member.
To avoid conflict in the future, it is vital to layout the process of buying out or replacing the ownership interests of a member within the operating agreement.
Dissolving the LLC
This section explains how the owners of the LLC can affect the dissolution of the LLC if at one time all the owners/members of the LLC decide they want to completely and officially terminate business operations.
Again, to avoid conflict in the future and for smooth termination of the business for instance if extreme losses persist, is a vital aspect of an operating agreement.
You can find more information on how to dissolve your Nevada LLC in our Nevada LLC Dissolution article.
WHY SHOULD I HAVE A LLC OPERATING AGREEMENT IN NEVADA?
The type of LLC you may want to register will not mean you do not need an operating agreement. Here are the reasons:
It is a State Recommendation
Section 86.286 of the Nevada Revised Statutes allows all members of an LLC in Nevada to prepare an operating agreement to control the activities of the business company.
Prevents Member Conflict
You will need an operating agreement for your multi-member LLC to set clear expectations of the roles and responsibilities of the members and the business as a wholly separate entity.
Preserves Limited Liability Status
An operating agreement will help preserve the status of the LLC as a limited liability entity which is important in separating the personal assets of members of the LLC from assets of the LLC in the eyes of a judge.
Additionally, an operating agreement is a great way to increase the credibility of the business.
WHAT NEXT AFTER CREATING YOUR LLC OPERATING AGREEMENT IN NEVADA
You do not need to file a copy of the agreement with the state once you have prepared an operating agreement for your LLC. However, you will need to store a copy safely after sharing copies of the agreement with members of the LLC.
Also, it is a great idea to evaluate and appraise an operating agreement upon exit of a member. Depending on how the operating agreement has been drafted it may require approval from some or from all members of the LLC.
FREQUENTLY ASKED QUESTIONS
Do I really require an operating agreement?
Yes. You will need to have an operating agreement in Nevada to maintain control of the work operations of the business entity especially during modern times of business uncertainty.
When is it the right time to create my operating agreement?
It is a good idea to prepare an operating agreement before submitting the Articles of Organization. The state, however, does not limit LLC from creating an operating agreement after the due process of forming the LLC is complete.
Noteworthy, some banks might require one to submit an operating agreement before opening a bank account for the business.
Do I have to file my operating agreement with the state?
No. There is no need to file a copy of your operating agreement with the Nevada Secretary of State. An operating agreement is supposed to be kept as records by the members.