Massachusetts LLC Operating Agreement
Your operating agreement is the legal blueprint for your Massachusetts LLC. It lays out the rules, procedures, and operating structure for your LLC, and once signed by all members, is a legal contract governing many important processes, including voting, allocation of profits and losses, and how to dissolve your business.
An operating agreement is an internal document, which does not need to be filed with the Massachusetts Secretary of the Commonwealth. But having a strong operating agreement is essential for any Massachusetts LLC. We know that most new LLC owners are not lawyers and don’t know how to write an operating agreement from scratch. That’s why we provide free, attorney-drafted operating agreement templates you can adapt to your LLC’s needs.
Why should a Massachusetts LLC have an operating agreement?
A Massachusetts 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.
Massachusetts commonwealth law doesn’t require an operating agreement, although in the absence of one, you are still required to have a written record of some information, including capital contributions, distribution rights, and the dissolution process, according to MA Gen L ch 156c § 9 (2019). Still, we at Northwest strongly recommend having a written operating agreement. Here are a few reasons why.
1. Your operating agreement proves you own your LLC.
Massachusetts doesn’t require you to list all members’ names and addresses on the Certificate of Organization—although if your LLC is member-managed rather than manager-managed, you will need to list the name and address of at least one member. Still, there are times when you’ll need to prove who owns your LLC, like when opening a business bank account. Your operating agreement will list every member’s name and address, so you can prove ownership when you need to.
2. An operating agreement can help reinforce your limited liability status.
In order for an LLC to maintain limited liability status, it must be able to prove that it is legally separate from its owners. Following your operating agreement’s rules and procedures demonstrates that your LLC is its own entity with clear boundaries and protocols. If you ever have to handle a lawsuit, a strong operating agreement will be one of your best weapons.
3. An operating agreement can help avoid misunderstandings.
Even when you trust and respect the people you do business with, you’ll probably run into a communication failure at some point. Putting your verbal agreements in writing can help your members get back on the same page.
4. An operating agreement can override Massachusetts’s default laws.
Without an operating agreement, your LLC will be subject to Massachusetts’s default rules. These rules might not be perfectly suited for your business, so it’s important to have a customized operating agreement that gives you more control over your LLC.
Massachusetts 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 Allison v Eriksson, where the members did adopt and maintain an operating agreement, however it failed to cover the scope of issues which soured the relationship between the two members. While the members in this case were likely destined for litigation at some point, their failure serves as a lesson to plan ahead, discuss potential pain points, and distill the collective understanding into a written operating agreement. Had the members done so in this case, their dispute might have been internally resolved or avoided entirely.
“Unfortunately, the members disputes resulted in extensive and expensive litigation that required resources which could have been devoted to other more fulfilling commercial purposes. Such valuable resources could have been preserved had the members of the LLC taken the time to memorialize and distill their understanding into a clear written operating agreement.”
What is included in a Massachusetts Operating Agreement?
Your operating agreement should establish the “big-picture” vision for your Massachusetts LLC. While you’re free to cover pretty much anything in your operating agreement that isn’t contrary to Massachusetts legal statutes, you should be sure to include the following topics:
- Membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
FAQs
Is an operating agreement required in Massachusetts?
Massachusetts law doesn’t require LLCs to have an operating agreement. However, without one, your LLC will be governed by the Massachusetts Limited Liability Company Act.
Do I have to file my operating agreement in Massachusetts?
No. Your operating agreement is an internal document, so you don’t need to file it with the government. However, MA Gen L ch 156c § 9 (2019) does require you to keep any operating agreements you do have on file at your place of business.
Does a single-member LLC need an operating agreement?
Yes. It may seem odd to sign an agreement with yourself, but an operating agreement is essential for a single-member LLC. You may need an operating agreement to open a business bank account, and if you are ever facing a lawsuit, your operating agreement can help you protect your LLC’s limited liability status.
*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.