Ohio LLC Operating Agreement
Your Ohio LLC operating agreement is a legal document that establishes rules for how your LLC will handle procedures like voting, allocating profits and losses, management, and even—should it ever come to this—dissolution.
An operating agreement is an internal document, but that doesn’t make it any less important than documents filed with the state. In fact, adopting a strong operating agreement is essential. That’s why we at Northwest offer a range of free, attorney-drafted operating agreement templates to help suit your business needs.
Why should An Ohio LLC have an operating agreement?
An Ohio 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.
Ohio Rev Code § 1705.081 (2019) describes what an operating agreement can and can’t do, but it doesn’t require one. However, you will need an operating agreement to maintain your LLC. Here’s why:
1. Your operating agreement proves you own your LLC.
You are not required to list the names and addresses of your members on your Ohio Articles of Organization, which means you can’t use your articles to show proof of ownership. Your operating agreement, on the other hand, lists the names of all members, so you can use it to show the bank, landlords, and potential investors that you own your business.
2. An operating agreement can help reinforce your limited liability status.
To benefit from limited liability status, business owners must follow certain formalities to show that their LLC is its own legal entity separate from its members. One way to do this is to open and use a separate bank account for your Ohio LLC. Another is to create (and follow) an operating agreement.
3. An operating agreement can help head off misunderstandings.
Disagreements and misunderstandings are inevitable in life—they will probably be inevitable within your LLC, as well. But, with an operating agreement that establishes rules and regulations for your business, you can help prevent these minor flare-ups from becoming bigger problems later on.
4. An operating agreement can override Ohio’s default laws.
If you don’t have an operating agreement, your LLC will automatically be governed by Ohio’s default laws. These statutes may not work for all aspects of your company. Having an operating agreement ensures you’ll be able to run your company in a way that (within the bounds of the law) suits your business.
Ohio 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 Germano v Beaujean, where the failure to actually adopt and maintain an operating agreement led to disputes among the members, resulting in extensive and expensive litigation. Because a written operating agreement was never adopted, the courts had to look to the statutory default rules for how to untangle and resolve the dispute between the members of the LLC.
“The valuable resources of each LLC member could have been preserved, and LLC operations could have continued without interruption, had the members of the LLC taken the time to memorialize and distill their understanding into an operating agreement prior to or immediately after beginning their LLC endeavors.”
What is included in an Ohio operating agreement?
Technically, your operating agreement can include anything (within the law) not already covered by Ohio’s state statutes. But a strong operating agreement is essential, and should include:
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures
Is an operating agreement required in Ohio?
No, LLCs in Ohio aren’t required to have an operating agreement. However, operating agreements are necessary for several important business processes, like opening a bank account and maintaining your limited liability status.
Do I have to file my operating agreement in Ohio?
No. Your operating agreement is an internal document, which means you’ll keep it on file with your own business documents.
Does a single-member LLC need an operating agreement?
In fact, yes. While it may seem weird to consider writing an agreement for yourself with yourself, even single-member LLCs need an operating agreement for certain tasks, like opening a bank account and maintaining limited liability.
*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.