How to Draft a Series LLC Operating Agreement: Here’s What You Need to Know
Dec. 10, 2022, midnight
Series llc in Tennessee
A limited liability company is known to everyone. However, not many people are aware of its other version, which is the series limited liability company. It is a complex entity that most people fail to understand in the beginning. Since a series limited liability company comes with its own set of risks, not much is for use by the entrepreneurs. Through LegalRegistration.com, you can form an LLC in no time.Yet, this form of company is being adopted by many commercial entities. And with the business structure series limited liability company gaining massive popularity, it is being adopted by the governments of various states.So if you wish to start a company of this structure, you need a formal agreement. In this article, we will specifically shed light on the series LLC operating agreement.
What is the Series LLC Operating Agreement?
This agreement is an innovative concept that unites cell series in a single LLC. There are several benefits that the series LLC operating agreement might provide. According to law, the series LLC should be created with the membership interests. When a company like this is established, it is recorded as the Delaware Series LLC. There are various benefits of this company, some of which are:
It has its own members.
Retention of own assets
Pursue various business objectives through different cells
The series LLC is popularly known as the “segregated portfolio companies ' in many parts of the world. And when creating a series LLC, the first-time filing fee is required. Regardless of how many cells are contained, this fee has to be paid. The series LLC is a single business wherein only a single agent is required. And a franchise tax fee is paid too. Series LLC operating agreement is created, so every member of the business feels protected. Below, we will share some essential information on the series LLC. Some important characteristics have been mentioned too:
The job of drafting the agreement should be given to the attorney.
Filing for the series LLC publicly is not mandatory.
For removing or adding the series or a cell, the agreement will have to be amended.
It is also recommended that every cell should apply as a “doing-business-as” title, which will be assumed as the fictitious name of the company.
Every owner in the series has to be listed in the DBA records.
Series LLC operating agreement should list every detail of the business.
A Series LLC Operating Agreement Has These Sections
After having a detailed description of what an LLC operating agreement is and what its characteristics are. It is crucial that you have the right knowledge regarding the sections that are present in an operating agreement of Series LLC. Let’s have a look at these sections one by one:
Terms and Purpose of the LLC
The first section you will see in a professional document of this sort would entail the details, name, purpose, and goals of the business. This section will also have the terms and conditions on which the business will achieve the set goals. This shows a clear picture of the goal of a company as it starts its journey in the marketplace. The outline of how to achieve that business goal to fulfill a bigger purpose is also spelled out in this section. You will customize this section in accordance with your business purpose. For more information visit the website LabyrinthTM Fundraising Compliance
Place of Business and Relevant Agent
This section consists of all the necessary information regarding the state that houses the business as well as the agent who is responsible for handling the business from that state. This section will also have any laws and sections that are associated with that particular state. These regulations can vary from one state to another. Make sure all the credentials you put in this section are up-to-date because failure to provide credible information can cause immediate termination of your business. You should always double-check the name, address, email address, and phone number of the agent mentioned in the agreement.
Contributions of the Managers
The role and responsibilities of all the managers of a series LLC will be spelled out in detail in this section. This has the information on measurable deliverables that are needed from people from managerial positions. In case of failure to get the desired deliverables, the place might be replaced with someone more eligible and skillful. Moreover, the criteria for the selection of members for any managerial position are also mentioned in this particular section.
Series LLC Members
This section has important information on the board members of the LLC. This section also dictates which member has the highest power and authority and which one has the least. The criteria for selecting the majority for decision-making and other legal requisites are also declared in this section. The information regarding the successors of the members of the series LLC might also be included in this same section.
Series LLC Management
The position of each team member and their job description is entailed in this section having all the responsibilities of each team member listed in detail. This helps in giving measurable criteria to check the performance of each. The roles and responsibilities at each level of management are clearly mentioned in this section.
Management of Liabilities
A company comes across many situations where it has to face many legal, personal or professional liabilities while they are vulnerable. There are many business models that do not provide any protection against liabilities, but some do. This section entails the limitations of the liabilities, if any, applicable to that company. This section will have all the liabilities mentioned in detail, including the ones that are not protected under your business model. For instance, a limited liability company or an LLC limits many liabilities and provides protection against them. How it does so and what kind of liabilities are limited is mentioned in detail in this particular section. Please give the LegalRegistration.com a phone call if you need more information.
Financial Distributions and Contributions
This section deals with all sorts of financial dealings and numbers. Everything from the contribution of individual investors to the distribution of profit to each member is structurally mentioned in this section. The distribution of the profits to clear taxes, office management, and other expenses is also contained in this section of the agreement.
Tax Treatment and Records
Often after the financial section, you will come across the tax treatment section that will spell out the tax percentage applicable to the annual income of the business in accordance with the state rules. State taxes vary from state to state and depend on the state a business is incorporated in. In addition to income tax, this section also caters to franchise tax and state tax, if any, applicable to your business.
Transfer of Rights and Additional Members
Now comes the section that talks about the transfer of rights from one board member to another in the same series LLC. It is usually done in an LLC with multiple members. They will have to go through a series of steps to transfer their rights, and the exact steps are mentioned in this section. Moreover, this section also entails information regarding how and when to add additional members to the board if necessary. In case of the absence of one member, how to select a substitute also comes in this section of the agreement. The nature of operations after the death of any of the board members will also fall in this part of the agreement. For additional information What services do we provide?
Resolution of Disputes
In any organization or business, disputes are unavoidable. A blueprint of how to handle such disputes is clearly stated in this part of the agreement. If any dispute arises in the company, the board members will turn to this agreement to find the most befitting solution for resolving that dispute. This dispute can be of legal or personal nature, and so can the consequences brought about by these disputes. Moreover, the penalty for wrongful claims is also mentioned in this section to avoid further disputes of the same nature in the future.
Termination of the Series
The details of the conditions and process of how to terminate a company are mentioned in this step. This is usually the last or second last section in the operational agreements. The general reasons for the termination of the company are mentioned by default. However, you can also add to those reasons to customize it in accordance with your business model and the members that work with you. The general things that are mentioned to terminate a company include the death of a board member, failure to pay the annual renewal fee, and the occurrence of an event that would terminate the company. You can further add the types of vents that would terminate the company for you.
What Are the Requirements for Drafting the Series LLC Operating Agreement?
The Rights and Responsibilities of Every Member
The distribution of authority and labor should be decided in the series LLC operating agreement. The rights of different members and the obligation of each should be mentioned. This is important for making every member understand their role in the company. Unless every member doesn’t understand their position in the series, they will be partial to the project.
Joining and Leaving the Series LLC
Every unexpected thing should be expected by the series' members. The operating agreement should have the protocol for a detailed procedure.
Why Have a Series LLC Operating Agreement
An LLC Operating Agreement is an agreement that sets all the rules and regulations on how a company will run in the future. This agreement has everything from who runs the company to how important decisions are made in the company. Check out article Hit & Run Although, in many states, you can still run a business without a proper operating agreement in place, having an agreement of this sort offers numerous advantages. The high-value legal and professional benefits are the main reason that one should have an operating agreement for their series LLC. Let’s look into the most highlighted benefits of this agreement:
Retention of Own Assets
In a series LLC, there is a retention of the personal assets of the owner. He will be able to retain his own assets. However, there are many company models that do not give the opportunity to retain assets. All assets are associated with the companies in such cases, which can cause legal complications.
Independence in Operations
The level and extent of independence in operations are also mentioned in an operating agreement of a company. This document strictly dictates how the authority is divided into different managerial positions. All the managers are responsible for operating their wings independently. The Series LLCs are particularly very independent in tier operations.
The Structure of the Business is Clearly Shown
The hierarchy of any business from top to bottom is clearly defined in the operating agreement of that company. The detailed job description starting from the owners to the junior-level worker is mentioned in this agreement to make things go smoothly. The role and job criteria at each level of the professional hierarchy are strictly mentioned.
Effective Financial Breakdown
The operating agreement is very important for any business for the reason that it provides an effective profit and expense breakdown. It states the average revenue, along with profit and loss margins, if any. It will also state the amount for which the services or the products of a business are sold. This financial breakdown is a quick giveaway of whether the business is going to a loss or not.
Division of the Duties
In the operating agreement, there is a division of duties among the whole team, which helps understand the workflow better. The responsibilities pertaining to a specific role are mentioned in detail, along with the relevant deadlines and daily or monthly targets. Roles and responsibilities are divided among the members of a business in accordance with their position and skills. For additional information Category
Prevention From Claims of Oral LLC
If you do not have an operating agreement for your series LLC, then you might face different lawsuits for the claims made orally. The claims that are made orally are very difficult to prove right and often more difficult to prove wrong. Hence, it is important that whenever you fall for a claim, you make it documented in one way or another. There is no better way of documenting an oral claim than having an operating agreement for your business where claims are enlisted in one place.
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