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 LLC in Louisiana 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 a Louisiana operating agreement.
On this page, you’ll learn about the following:
Louisiana 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.
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Importance of a Louisiana LLC Operating Agreement
Operating agreements in Louisiana aren’t mandatory if there is an LLC exists. Most states require that all business entities be incorporated to validate the structure of their business. It is possible to bypass this step in Louisiana and the LLC will not be penalized by law.
This is a must to ensure that your LLC to be shielded from any disputes or misunderstandings. Below, you can read some of the main reasons you should write this contract for the LLC.
- To safeguard the company: Basically, the operating agreement sets out the rules for an LLC. This means that the rules will be enforced by the government in case members fail to adhere to the rules. The agreement will safeguard the LLC from the government’s rules and provide other advantages.
- The LLC appears trustworthy: Investors take a look at the professionalism of the company when they are researching businesses. The operating agreement is what makes the LLC look professional since it demonstrates that the members care about the business and are determined to make the regulations and rules legal as well. So, this provides an opportunity for growth by attracting more investors.
- To verify the legal status of an LLCs: LLCs are recognized for their limited liability status and when the business has clearly stated that in the operating agreement, then the government cannot misunderstand. It is very simple for sole proprietorships to confuse an LLC comprised of a single member, however an operating contract can help establish that they’re distinct.
- To resolve any conflict: There could be future conflicts regarding distributions and decisions. The operating agreement sets out the process, requirements, rules, and guidelines for all members of the company. The operating agreement allows members to review quickly the details of the agreement prior to when they start performing a task.
- LLC flexibility is made possible due to Limited Liability Companies. Operating agreements are what allow these LLCs to have such a nature. The legality of an operating agreement provides the LLC with freedom.
- For opening bank accounts for business: Often, the owner will need a copy the operating agreement. The company will have difficulty opening an account with a bank if it does not have the original document.
How to Edit Operating Agreement of LLC in Louisiana
Once you’ve formed an LLC in Louisiana, you’ll want to know how to edit its Operating Agreement. If you want to add or remove members, you’ll need to file a form 938A with the state. But if you’d like to change your management team or add another manager, you’ll need to follow your operating agreement. Make sure to read through it thoroughly and make any necessary changes.
If you need to change the structure of the organization, your Operating Agreement should address issues related to ownership and governance. It should also detail how the members’ shares will be distributed in the event of death or regular retirement. For example, you may want to specify that your members must leave their ownership percentages to your surviving spouse if you die, or that they should leave the remaining ownership to your heirs. If you want to make the distribution of profits equally among the owners, you should include this in your Operating Agreement.
When you’re ready to file your LLC, it’s a good idea to create a written Operating Agreement. A Louisiana LLC Operating Agreement should clearly define the company’s governance and affairs. It should include the expectations of each member if the business dissolves. It should also detail the company’s name, address, and other important details. In case you’re planning to dissolve your LLC in the future, your Operating A-Vulgaris template should be able to do so easily.
In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in Louisiana.
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 Louisiana. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.