Multi-Member LLC Operating Agreement
A limited liability company with multiple owners operating the business is classified as a multi-member-managed LLC. Every LLC benefits from having an operating agreement (a legally binding document that sets the rules and structure of the company), but it’s especially important for member-managed LLCs, since the multi-owner structure makes the business more prone to internal conflict than other LLCs.
Operating agreements are approved by member vote at the initial meeting. As internal documents, they don’t need to be filed with the state. You can draft your own agreement or download and fill out our free attorney-drafted template, then finalize it with a vote, signatures, and a date.
Multi-Member LLC Operating Agreement – Free Template
Not sure if you have the right form? If you have two or more owners who are all going to be involved in the day-to-day operations of running the LLC, you’re on the right page. Our multi-member LLC agreement template is for your LLC to use in composing an agreement for its own operations that will help build on the business identity you worked hard to create.
Have a different situation? We have other operating agreements for download as well. If you have silent investors or want a non-member manager, you need a manager-managed LLC operating agreement. If you are the one and only one owner of the LLC, you just need a simple single-member LLC operating agreement.
Parts of a Multi-Member LLC Operating Agreement
From contributions to dissolution, there’s a lot an operating agreement needs to include. Our comprehensive multi-member LLC operating agreement template covers the following essentials:
This first section of the operating agreement performs 4 major functions:
- Affirms that the LLC has been formed by state laws and will conduct lawful business
- Notes where key business information (such as member info and registered agent) can be found
- Lists the events that can end the business (and how members can continue the LLC)
- Explains how to add new members
Each member makes initial capital contributions by funding the LLC with cash or other assets in exchange for ownership interest. In this section, you’ll enter the total value of all contributions. This article also notes that members are not obligated to contribute more later on.
So, when will members see some money? Under Article III, your LLC sets up how profits and losses are determined each year, and the way allocations will be made based on each member’s ownership percentage. You can choose to make distributions annually, or more frequently if the LLC’s expenses and liabilities are paid up (but if the company or membership interest is liquidated, distributions must follow Treasury regulations).
In a member-managed LLC, members are in charge. But with multiple members, how does business actually get done? 10 people can’t be king at the same time. What if there’s a dispute? Does everything have to be voted on?
This section sets up a system appointing a Chief Executive Member (CEM) for daily decision making and assigning other specific duties to individual members. However, all members have the authority to make decisions when performing duties for the LLC. Any disputes among members (including with the CEM) are decided by majority vote. Any legally binding agreements must be signed by all members. There are also consequences outlined for failing to perform duties.
This article also notes that as long as members are acting in good faith, they’re not liable for losses or damages to the LLC or expenses resulting from lawsuits or other actions against the LLC.
There are situations where the LLC may owe members for services or expenses. This section states that members are entitled to compensation for services—and the value of any service rendered must be unanimously agreed upon. Members will be reimbursed for approved LLC expenses paid out-of-pocket.
Article VI explains how books are kept. Members are responsible for keeping financial records, including separate capital and distribution accounts for each member. This section states that the LLC is to keep books on a calendar year. At the end of the year, the books are closed and a statement for each member is prepared.
This section goes into detail on 3 important points:
- How the other members can buy out a member’s interest if a member wants out
- How the LLC determines the value of the interest of the member who is leaving
- What the LLC will do if a member wants to exit without a buyer for membership interest
This section is designed to balance a few different potential issues. For instance, it’s important to protect the LLC from losing control to outside members. As such, this section outlines processes for the LLC to give members first shot at buying an exiting member’s interest and allows the LLC to assign interest to current members if there’s no buyer. Also, if a transfer isn’t unanimously approved by the LLC, whomever gets the interest won’t receive participation or management rights.
Another key issue is fair valuation—since it’s of interest to sellers to get high valuations and buyers to get low valuations, this section ensures that both sides have input and can defer to a third-party appraiser in case of dispute.
While everyone may have decision-making power, not everyone needs full access to the company coffers. This section designates a bank and give specific members financial authority for deposits, withdrawals, endorsements, payments and more.
It’s worth noting that operating agreements are useful and recommended to predetermine how the business is run, but you’ll also find that most banks won’t allow you to start a business bank account without providing a signed and dated copy of your LLC operating agreement.
Members can vote to end the LLC through the process of dissolution. This article notes that upon dissolution, the LLC is responsible for paying debts before making any distributions to members.
This is the signature page. Members sign to acknowledge that they agree to abide by the terms of the agreement.
Why should I have a multi-member LLC operating agreement?
A multi-member LLC is a limited liability company that has multiple owners who all work to run the LLC together. These are the LLCs most likely to end up in dispute due to members not establishing clear processes and communication in the beginning stages of the company.
It’s always exciting to start a business. Many people want to avoid the awkward discussion about what to do when you don’t like each other anymore or the business fails. Our multi-member LLC operating agreement goes into great detail as to what you agree you’ll do should the other party decide to no longer be a part of the LLC or do their share of the required work.
At Northwest, we provide loads of useful forms, but we do a lot more as well. We provide LLC registered agent service in every state. We have online tools to help keep your LLC in compliance. We also form LLCs for $100 plus state fees.
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Multi-Member vs. Manager-Managed LLCs
In a multiple member-managed LLC, all LLC members (owners) are involved in running the business. Meanwhile, in a manager-managed LLC, the LLC members hire managers to run the business for them. The people managing the LLC make day-to-day decisions about its business, including hiring employees, signing contracts, and opening a business bank account. Because of the addition of managers to the company’s organization, manager-managed LLC operating agreements tend to be a bit more complicated than agreements for member-managed LLCs.
Learn more about the differences between member-managed and manager-managed LLCs.
Additional LLC Forms
Our LLC forms page has templates you can use for all your business forms, including Articles of Organization, Membership Certificates, and Resolutions to Open a Bank Account.
