Operating Agreements for LLCs In South Dakota
It’s necessary for LLC owners in South Dakota to have an operating agreement so that business operations are protected. Even though an operating agreement isn’t required by state law, it can establish the LLC as a credible legal entity. Furthermore, it can ensure that the rules for the LLC are clear.
About LLC Operating Agreements In South Dakota
Operating agreements are legal documents that cover an LLC’s operating procedures as well as its ownership structures.
Operating agreements are important for any type of LLC, whether it has one member or multiple members. The agreement will not necessarily impact the operations of an LLC with just one member, but it is still beneficial to include these stipulations for legal purposes.
The agreement should discuss the topic of organization, which will include specifying when the LLC was formed, who the LLC’s members are, and how ownership of the LLC is divided up. An LLC with multiple members may use an equal ownership structure or give members varying units of ownership.
Management and voting are other topics that should be specified in the agreement. Will the LLC be managed by an appointed manager, or will its members handle management? If a vote is a cast, how will that be handled? It’s standard to give every member a single vote, but in some cases, you will want to give certain members greater voting power. Our guide comparing Manager Managed LLCs to Member Managed LLCs can provide you with more information on LLC management.
The agreement should also look at capital contributions, which refers to the amount of money that has been invested in the LLC by each of its members. A plan for raising more funds in the future should also be established.
The document should cover distributions, which determine how the LLC’s profits and losses will be divided up. In most cases, LLCs evenly distribute profits among members. It’s possible to distribute them differently, but this will need to be specified in your LLC’s operating agreement. If you want additional information on LLC ownership, our guide to Contributions and Distributions can be an excellent resource.
You’ll need to specify how any changes in the membership structure will be handled. If an LLC member chooses to leave, how will their ownership or role be transferred? The process for replacing a member or buying someone out will need to be specified in the governing document for the LLC.
You will also need to decide how dissolution will be handled. If the members of the LLC decide that they want to cease conducting business, the LLC will need to be officially dissolved. Your operating agreement should highlight the process you will go through when dissolving your business. Our article on LLC Dissolution in South Dakota can tell you more about dissolving an LLC in this state.
Why Do I Need An Operating Agreement For My South Dakota LLC?
It’s always essential to have an operating agreement when starting an LLC in South Dakota. Why is that so important?
To start, it’s what the state recommends. Section 47-34A-103 of South Dakota Codified Law states that every member of an LLC in South Dakota can enter into an operating agreement that regulates a company’s internal affairs.
Beyond that, having an agreement in place can prevent disputes between business partners. If you’re creating an LLC with multiple members, an agreement will ensure that the role of partners is clearly defined and that everyone is on the same page.
It can also help you to maintain your limited liability status. This is especially important for South Dakota LLCs with a single member. When you have an operating agreement, you increase the credibility of your business and make sure that your limited liability status is held up in court.
We worked with business attorneys to create free templates for operating agreements. We also build a customizable tool that can be used when creating an agreement. All you need to do is enroll for a free business center accounts.
Some of the sample templates available are:
Operating Agreements for Single-Member LLCs
Operating Agreements for Member-Managed, Multi-Member LLCs
Operating Agreements for Manager-Managed, Multi-Member LLCs
With the Operating Agreement Tool, it’s easy to customize your operating agreement so that it better suits the needs of your business.
Frequently Asked Questions
Is an operating agreement necessary?
Yes, even though the document won’t be filed with the state. Having an agreement can protect your South Dakota LLC in the future.
When should an operating agreement be created?
It can be helpful to put together an operating agreement before your Articles of Organization are filed. However, you can wait until after you’ve completed the formation process if you choose. With that said, you should be aware that banks may require you to submit an operating agreement before you can open a business bank account.
Does an operating agreement need to be filed with the state?
Operating agreements are retained by LLC members. Your agreement does not need to be filed in South Dakota.