Why should a Nebraska LLC have an operating agreement?
A Nebraska 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.
Even though Nebraska statute NE Code § 21-111(c) (2019) doesn’t explicitly state that an LLC must have an operating agreement, you will need an operating agreement to maintain your LLC. Here’s why:
1. Your operating agreement proves you own your LLC.
You don’t need to include the names of any LLC members when you file your Nebraska Certificate of Organization, which is great for maintaining privacy—not so great for showing proof of ownership. This is where your operating agreement comes in.
Your operating agreement lists the names of all members, so you can use it to show you own your business. This will come in handy when you go to open a bank account or rent office space—both banks and landlords will ask to see proof of LLC ownership.
2. An operating agreement can help reinforce your limited liability status.
To benefit from limited liability status, business owners need to show that their LLC is its own legal entity separate from its members. One way to do this is to open a separate bank account for your LLC. Another way is to create (and follow) an operating agreement.
3. An operating agreement can help head off misunderstandings.
Disagreements and misunderstandings are probably inevitable within any organization. But, having an operating agreement with an agreed-upon set of rules and procedures can help prevent those issues from bubbling up into major problems.
4. An operating agreement can override Nebraska’s default laws.
If you don’t have an operating agreement, your LLC will be governed by Nebraska’s default LLC statutes. The problem is that those default laws might not work for your company. By adopting an operating agreement, you can ensure your LLC operates in a way (within the law) that best suits your business.
Nebraska 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 Ryan Family LLC, where the presence of an operating agreement prevented a zealous member to expand the scope of litigation related to a deal involving the LLC. When the two co-managers were deadlocked as to how the LLC would proceed with a specific deal, they sought judicial intervention for the appointment of a receiver to break the managerial deadlock. After the litigation was already underway, a member sought to intervene on her own behalf and on behalf of the LLC alleging the co-managers’ decision to seek a receiver was a breach of their fiduciary duties. The courts, looking to the statutes and the operating agreement, recognized that in a manager-managed company, members do not retain the right to intervene, meddle, or become otherwise involved with the management of the LLC’s affairs.
“The courts easily recognized the member’s attempt to intervene in the litigation as improper, and promptly dismissed the member’s action. The Ryan Family LLC case is an excellent example of how much weight courts give to operating agreements in adjudicating LLC matters. For these reasons (and more), a reasonably prudent business owner would (and should) adopt and maintain an operating agreement.”
What is included in a Nebraska operating agreement?
According to NE Code § 21-102 (14), an operating agreement can be “oral,” “in a record” (written), or “implied.” However, a non-tangible agreement won’t hold up in court. Having a strong, written operating agreement for your Nebraska LLC is essential, and should include information about:
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
