Michigan LLC Operating Agreement
Your Michigan operating agreement is the legal document that governs your LLC. It is legally binding and establishes how your LLC will handle key situations, such as voting, transfers of membership interest, allocation of profits and losses, mergers, and dissolution.
Unlike the Michigan Articles of Organization, your operating agreement is an internal document—meaning you don’t need to file it with the Michigan Corporations Division. Creating a strong operating agreement is essential for Michigan LLCs, but it isn’t easy. That’s why Northwest offers a range of free, attorney-drafted operating agreement templates that are customized for Michigan LLCs.
Why should a Michigan LLC have an operating agreement?
A Michigan 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.
There is no state law requiring a Michigan LLC to adopt an operating agreement. But just because an operating agreement isn’t required doesn’t mean you should skip this step. An operating agreement serves many important functions for LLCs. Here are a few of them:
1. Your operating agreement proves you own your LLC.
Michigan law allows you to leave your members’ names off the Articles of Organization. This will help you protect your privacy, but you could run into trouble when you need to prove to a bank or potential investor that you own your business. Since your operating agreement lists all your members’ names and addresses, you can use it as proof of ownership—while keeping your personal information off the public record, if you choose.
2. An operating agreement can help reinforce your limited liability status.
In order to benefit from limited liability status, LLCs must be able to prove that there is legal separation between the LLC and its owners. This is why LLCs usually open a company bank account to separate business from personal spending. Your operating agreement can help you demonstrate that your LLC is a distinct legal entity by showing that your LLC follows clear rules and proceedings. This will be necessary if you ever face a lawsuit.
3. An operating agreement can help your members resolve disputes.
No matter how easygoing your LLC members are, there might come a time when you disagree on a major issue. If you get your initial agreements in writing, you’ll have a useful document to consult when you can’t agree on what to do next.
4. An operating agreement can override Michigan’s default laws.
In the absence of an operating agreement, your LLC will be subject to Michigan’s default laws for LLCs. These laws might not work well for your company. Having a custom operating agreement gives you maximum control over how your business operates.
Michigan 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 Altobelli v Hartmann, where the members did have an operating agreement, however, rather than utilize the dispute resolution processes and remedies available under the operating agreement, one member sought intervention into the LLC’s affairs through the courts. Unfortunately for all those involved in the extensive and expensive litigation, the Supreme Court ultimately weighed in and dismissed the case to arbitration due to the members’ failure to use and follow the processes within their operating agreement for resolving the dispute among the members.
“The Altobelli case is a prime example of why it is important not only to adopt and maintain an operating agreement, but also to read and understand the content and provisions of the operating agreement. For these reasons (and more), a reasonably prudent business owner would (and should) adopt and maintain an operating agreement.”
What is included in a Michigan LLC Operating Agreement?
Your operating agreement should outline how your Michigan LLC will handle the “big-picture” situations that are likely to come up. Technically, any topic not forbidden by Michigan law could be included in your operating agreement. But there are a few subjects every operating agreement should address:
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures
Is an operating agreement required in Michigan?
There is no state law in Michigan that requires LLCs to have an operating agreement. However, if you don’t have one, your LLC will automatically be governed by the Michigan Limited Liability Company Act. Also, without an operating agreement you may have difficulty opening a business bank account— and your limited liability status could be more difficult to prove in court.
Do I have to file my operating agreement in Michigan?
No, since operating agreements are internal documents, you don’t have to file yours with the Michigan Corporations Division. You’ll keep your operating agreement on file at your business.
Does a single-member LLC need an operating agreement?
Absolutely! While you might feel funny signing an agreement with yourself, operating agreements are vital documents for single-member LLCs. Most banks require you to show your operating agreement before you open a business bank account. If you ever face a lawsuit, your operating agreement can help you prove that your LLC has limited liability status. A single-member LLC without an operating agreement could look dangerously similar to a sole proprietorship—a business type with no legal separation between business and owner.
*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.