Minnesota LLC Operating Agreement
Your operating agreement is the legal document that establishes the rules and processes of your Minnesota LLC. This legally binding contract determines how your business will execute important functions, including voting, transferring membership interest, distributing profits and losses, and dissolving the business.
While the Minnesota Articles of Organization need to be filed with the Secretary of State’s office, your operating agreement is an internal document that your LLC keeps on record. Adopting a strong operating agreement is extremely important for Minnesota LLCs, but it can be hard to know where to start. That’s why Northwest provides free operating agreement templates that are customized for Minnesota LLCs.
Why should a Minnesota LLC have an operating agreement?
A Minnesota 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.
A Minnesota LLC isn’t legally obligated to have an operating agreement. Minnesota Statute § 322C.0110 outlines what an operating agreement may cover but doesn’t state that LLCs must have one. Still, we at Northwest strongly recommend adopting a written operating agreement. Here’s why.
1. Your operating agreement proves you own your LLC.
In Minnesota, you can opt out of including your members’ names on the Articles of Organization. This helps you keep more of your personal information off the public record, but it could make it tricky for you to prove who owns your LLC, which you’ll most likely need to do to open a business bank account. Here’s when an operating agreement comes in handy. Since your operating agreement will list all LLC members’ names and addresses, you can show it to a bank to prove ownership.
2. An operating agreement can help reinforce your limited liability status.
To maintain your limited liability status, your LLC must be able to show that it is a legally separate entity from the people who own it. To demonstrate this, LLCs must open a business bank account to keep business spending separate from members’ personal spending. Another way to show that your LLC is its own legal entity is by adhering to the rules and procedures documented in your operating agreement. If your LLC ever goes to court, your operating agreement could make a big difference in your case.
3. An operating agreement can help your members settle their differences.
It would be nice to believe you’ll never argue with the people you go into business with, but let’s be honest—it might happen. If you do run into conflict, you will refer to your operating agreement, which establishes in advance how your LLC will act in a variety of situations.
4. An operating agreement can override Minnesota’s default laws.
Any rule not established in your operating agreement will automatically be decided by Minnesota’s default LLC laws. These laws might not work well for how you want to structure your business. A custom operating agreement lets you override these default laws and create the best rules and structure for your LLC.
Minnesota 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 Trails End Enterprises of Duluth LLC, where several individuals sought to develop a piece of real estate, however, for reasons not revealed to the courts, the individuals decided to proceed by forming a single-member member-managed LLC. Years later, motivated by the inability to acquire value of the real estate conveyance to the LLC, one of the initial individuals brought legal action against the LLC and the sole-member claiming that the LLC and sole-member financially damaged the individual. Looking to the clear and explicit terms of the operating agreement, the courts decided the matter in the favor of the LLC and found that the individual had willfully and validly (yet strangely) conveyed the real estate to the LLC without any direct financial compensation.
“Assuming good faith on all parties, had the involved parties planned ahead, discussed potential pain points, and distilled their understanding into a written agreement, and continued to maintain that agreement, then this dispute could have been avoided and valuable resources could have been preserved for more fulfilling commercial purposes. For these reasons (and more), a reasonably prudent business owner would (and should) adopt and maintain an operating agreement.”
What is included in a Minnesota LLC Operating Agreement?
Your Minnesota operating agreement maps out how your LLC will function internally. You can include almost anything your operating agreement—as long as it doesn’t go against Minnesota laws—but it’s important that you cover the following subjects:
- Membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures
Is an operating agreement required in Minnesota?
An operating agreement isn’t legally required for Minnesota LLCs. However, operating agreements have many important uses, including allowing you to open a business bank account and reinforcing your limited liability status.
Do I have to file my operating agreement in Minnesota?
No, you aren’t required to file your operating agreement with the Minnesota Secretary of State. Instead, you’ll keep your operating agreement on record at your place of business.
Does a single-member LLC need an operating agreement?
Yep! While you won’t have to worry about members disagreeing, operating agreements are still essential for single-member LLCs. You will need an operating agreement to open a company bank account. Even more importantly, if your LLC ever faces a lawsuit, your operating agreement can help demonstrate to a court that your LLC is a distinct legal entity with limited liability status. Without an operating agreement, there’s a risk that your single-member LLC could be viewed as a sole proprietorship—a business type without limited liability protection.
*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.