Oregon LLC Operating Agreement
An Oregon operating agreement is the legal document that establishes the rules, processes, and management structure for an LLC. It serves as a binding contract between your members that determines many important processes for your LLC, including voting procedures, the distribution of profits and losses, membership interest, and dissolution, should it ever come to that.
Unlike the Oregon Articles of Organization, you don’t need to file your operating agreement with the Secretary of State. But the operating agreement is one of your LLC’s most important documents, and it’s worth putting the time and effort into crafting a good one. Since we know this is no simple task, Northwest offers a range of free, attorney-drafted operating agreement templates that are customized for Oregon LLCs.
Why should an Oregon LLC have an operating agreement?
An Oregon 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.
OR Rev Stat §63.057 (2019) states that an operating agreement (“if any”) can be oral or in writing. However, just like you wouldn’t build a house and skip laying the foundation, you shouldn’t build an LLC and skip writing the operating agreement. Here’s why.
1. Your operating agreement proves you own your LLC.
Oregon gives you the option of not listing all your members’ names on the Articles of Organization. Taking advantage of this will help you protect your privacy, but it could also make it difficult to prove to a bank, landlord, or potential investor that you actually own your LLC. With an operating agreement that lists all your members’ names and addresses, you can prove your ownership when you need to.
2. An operating agreement can help reinforce your limited liability status.
In order to maintain limited liability status, an LLC must be able to demonstrate that it is a separate legal entity from its owners. This is why LLC owners follow formalities like managing their business finances in a separate business bank account. This is also why it helps to have a written operating agreement that documents the rules and procedures your LLC follows. If your LLC is ever taken to court, a written operating agreement is a legally binding document you can use to support your case. A verbal operating agreement is difficult to prove, so it has less power.
3. An operating agreement can settle disputes between members.
There may come a time when your members can’t agree on an important matter. That’s when it helps to consult your operating agreement, which covers how you will proceed in a range of situations.
4. An operating agreement can override Oregon’s default laws.
An operating agreement gives you more control over how your LLC functions. If you don’t adopt an operating agreement, your LLC will be governed by Oregon’s default LLC laws. Your operating agreement lets you override these default laws and run your LLC in the way that works best for you.
Oregon 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 Sherwood Park Business Center, LLC, where a member’s financial desperation drove him to divert LLC resources for his own purposes, thereby breaching his fiduciary duties to the LLC and the other members and compromising the financial status of the LLC. The desperate member attempted to shield his situation by assigning his interest in the LLC to another LLC formed specifically for that assignment of interest. Fortunately for the other members, this bad faith member failed to adhere to the assignment procedure spelled out in the LLC’s operating agreement, thereby invalidating the bad faith member’s attempted transfer and preventing that member from escaping accountability for his bad acts.
“Because the members of the LLC in Sherwood Park adopted and maintained an operating agreement, the courts were easily and consistently able to side with members against the bad faith member and his improper actions. For these reasons (and more), a reasonably prudent business owner would (and should) adopt and maintain an operating agreement.”
What is included in an Oregon LLC Operating Agreement?
Oregon law gives you a lot of freedom over what you include in your operating agreement—OR Rev Stat § 63.057 (2019) states that an operating agreement can be used to create any rules for the LLC as long as they aren’t “inconsistent with the law or the Articles of Organization.” That said, there are some topics that you should be sure to 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 Oregon?
Oregon doesn’t require your LLC to have an operating agreement. However, having an operating agreement allows you to open a business bank account, override default laws, and better protect your limited liability.
Do I have to file my operating agreement in Oregon?
Nope. Your operating agreement is an internal document, so you can keep it on file at your business rather than filing it with the Secretary of State’s office.
Does a single-member LLC need an operating agreement?
Yes! It may feel weird to sign a contract with yourself, but single-member LLCs still need an operating agreement. Why? If you’re ever sued, your operating agreement helps you to prove your company has limited liability status. Without an operating agreement, there’s a risk that a court could view your single-member LLC as a sole proprietorship (an entity type where the owner can be held personally liable for damages against the business).
*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.