Iowa LLC Operating Agreement
Your operating agreement is the legal document that formalizes the rules and structure of your Iowa LLC. Once all of your members have signed the operating agreement, it is a legally binding contract establishing how your LLC will handle situations like voting, allocating profits and losses, transferring membership interest, and dissolving the company.
Unlike the Iowa Certificate of Organization, your operating agreement is an internal document, so it doesn’t need to be filed with the Secretary of State. However, having an operating agreement that is tailored to your LLC’s needs is essential. Unless you’re a lawyer, the prospect of creating an operating agreement is probably intimidating. That’s why we provide free, attorney-drafted operating agreement templates that are Iowa-specific and customized to fit your ownership and management structure.
Why should an Iowa LLC have an operating agreement?
An Iowa 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.
Iowa state law doesn’t require you to have a written operating agreement. Iowa statute § 489.110 lists common provisions an operating agreement can include, but the law doesn’t state that you must have one. Even so, a customized operating agreement is extremely useful. Here’s why:
1. Your operating agreement proves you own your LLC.
The state of Iowa doesn’t require you to list members’ names and addresses on the Certificate of Organization. This can make it tricky to prove to a bank who owns your LLC, which you will need to do to open a company bank account. However, most banks will accept an operating agreement as proof of ownership of your LLC, as it will list the names and addresses of all members.
2. An operating agreement can help reinforce your limited liability status.
For an LLC to maintain its limited liability status, it must be able to show that it is a separate legal entity from the people who own it. To do this, LLC members have to follow formalities like keeping business finances separate from personal finances. Another way to demonstrate that your LLC is legally separate is by having your rules, procedures, and structure documented in a written operating agreement. If your LLC is ever sued, your operating agreement will be one of your most powerful weapons for protecting your limited liability.
3. An operating agreement can help head off disputes.
It’s human nature to disagree from time to time. But in order to keep a misunderstanding from turning into a huge legal mess, it helps to have your verbal agreements on paper.
4. An operating agreement can override Iowa’s default laws.
Any rules you don’t specify in your operating agreement will be decided by Iowa’s default LLC statutes. These rules might not be the best for your business. An operating agreement gives you more control over how your LLC is run.
Iowa 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 Barkalow v Clark where the failure to adopt and actually maintain a clear and concise operating agreement led to disputes among the members (who were also related through family and marriage), resulting in extensive and expensive litigation, along with almost terminating a highly profitable LLC operation.
“Such valuable resources (and relationships) could have been preserved had the members of the LLC taken the time to clearly memorialize and distill their understanding into a clear written operating agreement, rather than ‘squabbling’ among themselves, as described by the Iowa Supreme Court. For these reasons, inter alia, it is important to not only adopt a written operating agreement, but it is also important to maintain an operating agreement for your LLC.”
What is included in an Iowa LLC Operating Agreement?
Your operating agreement should lay out the “big-picture” vision for your Iowa LLC. Technically, anything can be included in your operating agreement that doesn’t contradict Iowa state law. But there are a few essential topics you should be sure to include:
- Membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures
Is an operating agreement required in Iowa?
A written operating agreement is not legally required in Iowa. However in the absence of an operating agreement, your LLC will be governed by Iowa’s Revised Uniform Limited Liability Company Act. You’ll also need an operating agreement to open a business bank account and, in the case of a lawsuit, reinforce your limited liability status.
Do I have to file my operating agreement in Iowa?
No, you don’t need to file your operating agreement with the Iowa Secretary of State. Your operating agreement is an internal document that your LLC keeps on record.
Does a single-member LLC need an operating agreement?
Definitely! While a single-member LLC doesn’t need to worry about disputes between members, there are several other important uses for an operating agreement. You will most likely need an operating agreement to open a business bank account. More importantly, a written operating agreement helps you defend your limited liability status. In the face of a lawsuit, your operating agreement helps you demonstrate to the court that your LLC is a legally separate entity from yourself.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.