Why should an Alaska LLC have an operating agreement?

An Alaska LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.

According to AK Stat § 10.50.095, Alaska LLCs “may adopt an operating agreement.” However, the benefits of having an operating agreement far outweigh any reason to forgo having one. Here’s why:

1. Your operating agreement proves you own your LLC.

Unlike your Articles of Organization, which may not include any members’ names, your operating agreement can be used to show who owns your business. This is required for important tasks, like opening a bank account.

2. An operating agreement can help reinforce your limited liability status.

To maintain limited liability status, business owners must take certain steps to show that their LLC is its own legal entity separate from its members. One obvious way to show this separation is to open a business bank account. Another way is to establish (and stick to) an operating agreement.

3. An operating agreement can help head off misunderstandings.

Disagreements and misunderstandings are part of any business (unfortunately). But having an operating agreement that establishes the rules and procedures for your LLC from the get-go can help prevent those disagreements from getting out of hand.

4. An operating agreement can override Alaska’s default laws.

Without an operating agreement, your LLC will automatically be governed by the Alaska Revised Limited Liability Company Act. The problem is that Alaska’s state statutes might be less than ideal for your business. Writing an operating agreement for your LLC gives you more control over your business.

Alaska Case Law

We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*

“Consider the case of Alaska Interstate Construction, LLC, (AIC), where the managing member engaged in self-dealing that was later deemed to have damaged the LLC to a tune of over $17 million. Besides the lengthy discussion about procedural matters (interesting to lawyers, boring to normal sane humans), the AIC case demonstrates the importance and impact of written agreements overriding oral communications, reinforcing the importance of members distilling their understandings into written form. Assuming good faith by all parties in AIC, it is possible that the members intended for everyone to make a profit and to allow for self-dealing in some capacity. In the absence of that understanding in writing, however, when the hard numbers are revealed and the members feelings towards each other have evolved and changed, the lack of language fails to guide the members in the event of disputes related to each other’s actions or conduct.

“Had the members in AIC expressly stated in their operating agreement that the members could engage in self-dealing, outlined the necessary conditions to provide for fairness, and delineated how self-dealing disputes would be handled and resolved, valuable resources of the LLC and members could have been preserved for more fulfilling purposes. For these reasons (and more), a reasonably prudent business owner would (and should) adopt and maintain an operating agreement.”