Should a West Virginia LLC have an operating agreement?
Yes! A West Virginia 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.
West Virginia Code § 31B-1-103 (2019) does not explicitly require LLCs to have an operating agreement—it even states that an operating agreement “need not be in writing.” However, a good operating agreement—written down—is essential for your LLC. Here’s why:
1. You’ll need an operating agreement to open a business bank account.
After you file your West Virginia Articles of Formation, one of the first things you’ll want to do is open a business bank account. This is one of the most basic ways to maintain limited liability—and you’ll need an operating agreement to do it.
2. An operating agreement can help reinforce your limited liability status.
To benefit from limited liability, business owners must show that their LLC is its own legal entity separate from its owners. One way to do this is to open a business bank account for your LLC. Another way is to create (and follow) an operating agreement.
3. An operating agreement can help head off misunderstandings.
Sometimes two people just aren’t on the same page—it happens. But having an agreed-upon set of rules and procedures for your business can help prevent those misunderstandings from flaring up into bigger issues.
4. An operating agreement can override West Virginia’s default laws.
If you don’t have an operating agreement, your LLC will automatically be governed by West Virginia’s LLC statutes. The problem is that these default laws might not suit your business. To make sure you’re able to operate your business in the way you see fit, it’s best to create an operating agreement.
West Virginia 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 Ripley Associates LLC, where the failure to adopt an operating agreement (coupled with bad faith conduct by the other members) resulted in an economic windfall for the spouse of a deceased member. Over the protests and objections of the remaining members, the courts applied the statutory default ‘gap filler’ rules for partnerships, specifically the default rule that remaining members were legally required to buy out the deceased member’s ownership interest for fair market value, because the members failed to adopt and formalize their LLC operations with an operating agreement.
“Had the members taken the time to plan ahead, discuss potential pain points, and distill their understanding into a written agreement, such extensive and expensive litigation (and the results) could have been avoided, preserving valuable resources for more commercially fulfilling 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 West Virginia operating agreement?
Technically, your operating agreement can cover anything (within the law) not already covered by West Virginia’s Uniform Limited Liability Company Act. However, having a strong operating agreement is essential, and should include information about the following:
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures