Starting an LLC can 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 Massachusetts 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 a Massachusetts operating agreement.
On this page, you’ll learn about the following:
Massachusetts 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:
Importance of a Massachusetts LLC Operating Agreement
In the state of Massachusetts, if you own an LLC, it is not required to create an operating agreement. The majority of states require that business entities incorporate an operating agreement to allow them and for the state to review the structure of the business. This step can be skipped in Massachusetts when you create the LLC. It won’t attract any fines.
This step is essential if you want your LLC to be protected from any misunderstandings or negotiations. Here are some reasons why LLC members should have an LLC agreement.
- To safeguard the company: Basically, the operating agreement sets out the rules for an LLC. This means that the rules are enforced by the government if any members are unable to keep them in line. This agreement could be used to protect the LLC from being subject to the government’s rules and offer additional benefits.
- Makes LLC appear credible: If the investors are researching the businesses, they will look at how professional the company is. Because the operating agreement shows that the members care about their business and are determined to ensure that the compliance of the law and all regulations The LLC looks professional. So, this provides growth to the company by attracting more investors.
- The LLC status must be protected: LLCs are well-known due to their limited liability status. If the operating agreement clearly defines this and the government is aware of it, they is not able to confused. Operating agreements are an opportunity to prove that they are not the same.
- To resolve conflicts: There may be future conflicts concerning distributions and decisions. The operating agreement sets out the process, requirements as well as rules and guidelines for all members of the company. If a task is required members are able to consult the operating agreement to find specifics and then move on.
- LLC flexibility is made possible due to Limited Liability Companies. They can be of this type of character since the operating agreement assists the LLC to be flexible. The operating agreement grants the LLC the freedom to operate.
- In order to open business accounts, it is necessary for the owner to keep a copy. The business will face difficulties opening a bank account in the absence of this document.
How to Edit Operating Agreement of LLC in Massachusetts
Operating Agreement of LLC in Massachusetts can be edited when all the members agree to the amendment(s). You do not need to file it with the state.
If you’re not sure how to modify the Operating Agreement of your LLC in Massachusetts, it’s helpful to consult with an attorney. An attorney will make sure that the agreement covers all eventualities and disputes. You can choose between flat-rate or hourly rates, depending on your situation and budget. To find the right attorney, you can visit a website such as Avvo. You can sort the database by rate and location to find lawyers in your area who specialize in the formation of LLCs.
While the Operating Agreement is not filed with the Secretary of Commonwealth, it is still an important document that should be reviewed regularly. Changing the agreement should only happen when major events occur within the company. In some cases, the agreement will need to be revised after a merger or sale. To ensure that your Massachusetts LLC remains protected, you should update the operating agreement periodically. The best way to do so is to update it as necessary.
To make changes to the Operating Agreement of an LLC, all members and managers must agree to the changes. In most cases, changing or modifying this document is as simple as making changes to an electronic file. The resident agent service will enter the changes into the electronic file and then save and print a copy. If you want to make changes to the Operating Agreement of your LLC in Massachusetts, you can use a resident agent service to help you create a copy.
An operating agreement improves the organizational structure of the company. It defines the responsibilities of each member and the limits of the owner’s liability. If you’re operating a multi-member LLC, an EIN is required for tax reporting purposes. Single-member LLCs do not require an EIN. You can opt for a one-member LLC if you want to avoid filing an EIN. The LLC must also have a street address, which can be a home or company building address.
You can edit the name of your LLC in Massachusetts any time you choose. Changes to the name can also require an amendment. You must also file a new annual report or change of address. Massachusetts requires that you report all changes on these forms. To amend your LLC, you must file an amendment with the state. If you decide to change the name of your LLC, you must also report the changes to all the managers and members.
As the owner of your LLC, you need to make sure you’ve outlined the rules of your company’s ownership. Your operating agreement should cover every possible scenario – from deciding to split the profits evenly to determining who will own the business. There are many other important parts of your LLC that should be covered in your operating agreement. You can always find them in the Contributions and Distributions guide and Changes to Membership Structure that outlines the process.
In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in Massachusetts.
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 Massachusetts. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.
The operating agreement is an important document for your Massachusetts LLC. However, it is not mandatory to file in many states. It is strongly recommended to file the operating agreement even if it is not required in your state. Get a professional LLC service to file your operating agreement properly.