Starting an LLC may involve filing articles of organization with the state and establishing internal ground rules for how your business should operate. Establishing your credibility as a legal entity is a part of the plan.
Every Arkansas LLC is encouraged, but not required, to have an operating agreement to safeguard the company’s operations, from organization to dissolution. It ensures that all LLC members understand their roles and responsibilities. This page guides you in making an Arkansas operating agreement.
On this page, you’ll learn about the following:
Arkansas LLC Operating Agreement Content
An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. Topics not restricted to a single member or multi-member LLC will be covered. While these provisions might not influence day-to-day operations, they must be included for legal reasons.
- Ownership: The operating agreement details who the members are and how ownership is divided, be it a sole proprietorship or LLC. Sole proprietorship refers to a single person with total control over a business, also known as a single-member LLC. Multi-member LLC members can have either equal or varying ownership interests.
- Management: Your LLC could be member-managed or manager-managed. The former means members can decide regarding contracts with third parties; the latter means only designated managers can do so. Using “manager-managed” instead of “hands-on” can reduce administrative work. Management’s authority is also limited in the Operating Agreement.
- Voting: Define each owner’s voting rights and voting thresholds, such as a majority vote, supermajority vote, and unanimous consent. A variety of approvals are needed for each type of decision.
- Changes in Membership Structure: If someone leaves the company, how will roles and ownership be transferred? A member buyout and/or replacement procedure must be outlined in the LLC’s governing document.
- Contributions: All types of contributions are accepted. In order to fund their ownership interests, members will have to invest in the collective funds.
- Equity Splits: Determine equity for each member, taking into consideration things like their contributions, responsibilities, and fairness. Maintaining fairness in your equity split will help prevent future disagreements.
- Transfers: You may want to consider outlawing transfers of ownership interests without the consent of all owners. It’s always a good idea to include permitted transfers, such as first refusal, drag-along rights, tag-along rights, and estate planning transfers.
- Business Restrictions: To protect the privacy of the company, including confidentiality obligations. You may also ban the owners from owning competing businesses.
- Intellectual Property: Detail; the ownership of intellectual property created by members. Make sure all company-created intellectual property is owned by the company. You can find alternative ownership/license structures if necessary.
- Taxation: Determine how you will be taxed and plan accordingly. Remember, however, that you must file an LLC annual report and might be required a sales tax.
- Guaranteed Payments: Determine if any of the members should receive Guaranteed Payments, which are like a salary, particularly if your LLC is taxed as a partnership.
- Distribution & Dividends: Explain to all members how the funds will be allocated. A pass-through entity will impose tax distributions regardless of profit distributions.
- Dissolution: The LLC should be dissolved if all members elect to cease operations. It is important to identify how you will end your business in your operating agreement.
Note that the operating agreement, though not a legal requirement in most states, is vital in the operation of your LLC. Should your members have issues with the business, you can deal with it with guidance from the operating agreement.
Get Help from a Registered Agent
Developing an operating agreement could be tedious at times. Besides, since it deals with how your business operates, then it would be best to have professionals help you with it to make sure you get everything right. Getting help from registered agents would be your best bet. Here are three of our best LLC services that can provide you with registered agents to free you of worries:
Our Rating & Pricing
#1 TOP PICK
Free LLC Setup
$49 + State Fees
$299 + State Fees
Importance of an Arkansas LLC Operating Agreement
Arkansas’s law does not require the creation of an operating agreement for LLCs. To be able to assess the business structure, most states require that businesses include an operating agreement. In Arkansas, it is possible to skip this step while creating the LLC and it won’t attract any legal fines.
But, it is an essential measure to make sure that the business, as well as its owners, are protected from any misunderstandings. Below, you can read some of the main reasons why you should draft this agreement for the LLC,
- To safeguard the business: The operating agreement defines the rules of an LLC. The laws of the government will be in effect in the event that members are not capable of following the rules. The agreement will protect the LLC from government rules and provide other advantages.
- The goal is to make the LLC credible Investors will be able to judge the business’ professionalism when they look at the company. And the operating agreement is what makes the LLC so professional because it demonstrates that the members care about the company and they want to make all the rules and regulations legit too. This means that it will bring an opportunity for growth by attracting investors.
- To protect the legal status of LLCs the LLC’s status can be protected by defining it in operating agreements to ensure that the government isn’t confused. LLCs are generally recognized since they have limited liability status. It is simple to confuse a single-member LLC that is sole proprietorship but an operating agreement could demonstrate that they are distinct.
- To resolve any conflicts To resolve any conflicts that may arise over decisions or distributions. The operating agreement outlines the procedure, rules and guidelines that apply to all members of the company. The operating agreement allows members to quickly review the terms of the agreement before they start performing a task.
- LLC flexibility: Limited Liability Companies should be flexible. This is their nature. This flexibility is provided in the operating agreement. The validity of an operating agreement grants the LLC with the freedom to operate.
- To open business accounts, it is essential for the business owner to keep an exact copy. It is difficult for the business to open a bank account if it doesn’t have the operating agreement.
How to Edit Operating Agreement of LLC in Arkansas
Before you can use a limited liability company (LLC) in Arkansas, you need to create and edit an operating agreement. This is a document that outlines the terms and conditions of your business. It should be signed by all of the members of your LLC, and it must have all of the information you need. Then, you must submit this document to the Secretary of State. The operating agreement does not need to be submitted to the Secretary of State, but it should be stored in the LLC’s files because you may need to reference it in the future.
While an LLC does not need to file its operating agreement with the state, it is a good idea to keep it updated. It is essential that you keep it updated, because it will be the document that describes how the business is run. If you have an existing LLC in Arkansas, you can edit the operating agreement by using the template you downloaded. However, you should note that these templates have not been reviewed by an attorney, so you should not rely on them for legal purposes.
An operating agreement is important for your business. It describes the rules and policies that apply to your LLC. It should also list the members and their percentage ownership. Your LLC should have an operating agreement. Failure to do so could make it subject to default Arkansas law. A company’s operation can be disrupted if it doesn’t have an operating contract. To avoid this situation, you should write an amended operating agreement.
In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in Arkansas.
You and other members of the LLC will be unable to reach any agreements if you do not have an operating agreement. Even worse, your LLC must follow the state’s default operating conditions.
It is required by law in California, New York, Maine, and Missouri, but it is not in Arkansas. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.