Mississippi LLC Operating Agreement
Your Mississippi Operating Agreement is the legal document that establishes the rules and structure of your LLC. Once all of your members have signed it, it is legally binding and determines how your LLC will handle important situations like voting, transfers of membership interest, distribution of profits and losses, and dissolution.
An operating agreement is an internal document, so unlike the Mississippi Certificate of Formation, your operating agreement doesn’t need to be filed with the state. But creating an operating agreement isn’t just busywork. It’s an essential step to take after you form your LLC. To make crafting an operating agreement less of a hassle, Northwest provides free, attorney-drafted Mississippi operating agreements to get you started.
Why should a Mississippi LLC have an operating agreement?
A Mississippi 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.
Mississippi doesn’t legally require LLCs to have an operating agreement. MS Code § 79-29-123 (2019) spells out the rules for operating agreements, but it doesn’t say you MUST have one. Even though it’s not required, having a written operating agreement is vital for Mississippi LLCs. Here’s why.
1. Your operating agreement proves you own your LLC.
In Mississippi, you can leave your members’ names and addresses off the Certificate of Formation to limit the personal information that’s on the public record. But there are times when you’ll need to prove that you own your company, like to open a business bank account or convince someone to invest in your LLC. Your operating agreement will have all members’ names and addresses listed, and since it’s a legally binding document, you can use it to show proof of ownership.
2. An operating agreement can help reinforce your limited liability status.
To maintain limited liability status, LLC owners need to be able to show a clear separation between business and personal finances and interests. By following the processes in your operating agreement, you help to show that your LLC is a distinct legal entity with clear policies in place.
3. An operating agreement can head off disputes between members.
Occasional miscommunication is just part of doing business with others, but you don’t want a small disagreement to turn into a legal battle. By formalizing your initial agreements in a written operating agreement, you reduce the risk of a legal quagmire down the road.
4. An operating agreement can override Mississippi’s default laws.
If your LLC doesn’t adopt an operating agreement, it will be subject to Mississippi’s default statutes for LLCs. These statutes might be all wrong for your business. Adopting a custom operating agreement allows you to create your own rules for your LLC.
Mississippi 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 White Hall on MS LLC, where a group of five individuals intended to purchase and possibly develop a piece of real estate. Unfortunately, of the five individuals, only three were able to provide the agreed upon capital contributions to move forward with the real estate acquisition, while the other two individuals were only able to provide partial payments. Years later, one of the individuals experienced financial hardship and a dispute emerged between himself and the LLC. Litigation ensued, and it was eventually determined that the individual who only provided part of the capital was not actually a full-fledged member of the LLC, and was therefore not entitled to any of the LLC assets, nor a return of his partial payments towards his initial capital contribution.
“In determining the individual’s non-membership status, the Supreme Court of Mississippi looked to the statutes and the express terms of the operating agreement that clearly stated that individuals were expected to pay the entirety of their respective capital contributions before they were considered members of the LLC. As one would expect, because the individual had not completely contributed his respective capital, the courts determined that he was not considered a member of the LLC. Because the members had adopted an operating agreement, the courts were able to fairly expeditiously resolve the matter. However, as the dissenting judge points out, this whole dispute could have been internally resolved (if not completely avoided) had the individuals adopted an operating agreement before, in parallel with, or immediately after filing the LLC’s articles of formation. For these reasons (and more), a reasonably prudent business owner would (and should) adopt and maintain an operating agreement.”
What is included in a Mississippi LLC Operating Agreement?
Your operating agreement is the road map for how your LLC will navigate the major situations you’re likely to face. Technically, any rule not prohibited by Mississippi state law could be included in your operating agreement. Just be sure you include the following topics:
- Membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures
Is an operating agreement required in Mississippi?
Mississippi law doesn’t require LLCs to have an operating agreement. Even so, a written operating agreement is usually necessary to open a business bank account, and it can help reinforce your limited liability status if you’re ever served with a lawsuit.
Do I have to file my operating agreement in Mississippi?
Nope, you don’t need to file your operating agreement with the Mississippi Secretary of State. Your operating agreement is an internal document you keep on file at your primary place of business.
Does a single-member LLC need an operating agreement?
Yes! We know it seems weird to sign an agreement with yourself, but operating agreements are important for single-member LLCs. You’ll need an operating agreement to open a business bank account. And if you ever have to go to court, a written operating agreement can help you demonstrate that your LLC is a legally separate entity with 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.