Michigan LLC Operating Agreement Template

In Michigan, your limited liability company (LLC) is not required to have an operating agreement in place. But it’s highly recommended, as an effective operating agreement can help avoid disputes and lawsuits that could threaten the stability of your LLC. 

What is an LLC Operating Agreement?

A Michigan LLC operating agreement is an important legal document that details who owns the business and provides essential information pertaining to member duties. An LLC operating agreement establishes the financial relationship between members and the basics of the working relationships between those members and the managers who oversee daily operations. 

The operating agreement is not filed with the state, but instead remains private. It’s advisable to hire an attorney to ensure your operating agreement is thorough and legally binding.

What Should Your LLC’s Operating Agreement Include?

Here are some key provisions that a Michigan LLC’s operating agreement should include:

1. Basic information: Include the LLC’s name, principal office address, the purpose of the business, and the effective date of the operating agreement.
2. Member details: List the names, contact information, and capital contributions of each member. Include the ownership percentage each member holds and any changes in ownership structure that may occur in the future.
3. Management structure: Specify whether the LLC will be managed by its members or by appointed managers. Define the roles, responsibilities, and decision-making authority of managers or managing members. If the LLC has a board of directors, the operating agreement will also include the role and responsibilities of the board members and how they are compensated. 
4. Voting rights and procedures: Outline the voting rights of members, including how votes will be allocated and how decisions will be made. Clearly state the requirements for a quorum and the voting thresholds for various decisions, such as amending the operating agreement or admitting new members.
5. Profit and loss allocations: Define how profits and losses will be distributed among members, typically in proportion to their ownership interests.
6. Distributions: Establish rules for distributing profits, losses, and other assets to members, including the timing and method of distributions.
7. Tax treatment: State how the LLC will be treated for tax purposes, whether as a partnership, a corporation, or a disregarded entity.
8. Recordkeeping and financial reporting: Specify the LLC’s recordkeeping and financial reporting requirements, including who is responsible for maintaining records and the frequency of financial reporting.
9. Admission and withdrawal of members: Outline the procedures for adding new members or allowing existing members to withdraw from the LLC. This may include buyout provisions and the valuation process for a member’s interest.
10. Dissolution and liquidation: Detail the circumstances and procedures for dissolving the LLC, as well as the process for distributing the remaining assets among the members.
11. Indemnification and limitation of liability: Include provisions to protect the LLC’s members and managers from personal liability for the LLC’s obligations, and to indemnify them for actions taken in good faith on behalf of the LLC.
12. Dispute resolution: Establish a process for resolving disputes among members or between members and the LLC, such as mediation or arbitration. Also, what happens when a member sells their interest, becomes disabled, or dies.
13. Governing law: Specify that Michigan law will govern the operating agreement and any disputes arising under it.
14. Amendments: Describe the process for amending the operating agreement, including the required voting threshold and any notice requirements.
15. Miscellaneous provisions: Include any other provisions specific to the LLC, such as non-compete or confidentiality agreements, rights of first refusal, or restrictions on transfer of membership interests.

An LLC operating agreement provides legal and financial recourse for a number of situations. If conflicts arise between LLC owners pertaining to any of the above issues, the operating agreement will provide clarity. The specific language of the operating agreement lays out exactly how such conflicts will be resolved, how the business is structured, the dynamics of operations, and more. 

Though Michigan has default rules on the books that address some of the issues that might arise between LLC members, your LLC operating agreement would override these default laws and give you greater control.  

It is essential to tailor the operating agreement to suit your specific business needs. Consulting with an attorney when drafting an operating agreement is advisable to ensure that it complies with Michigan law and adequately addresses your LLC’s unique circumstances.

How Much Does an Operating Agreement Cost? 

Creating an operating agreement is free if you just draw it up yourself. Alternatively, you can pay for guidance from an online business advisory like ZenBusiness.

This is an extremely important document, so it’s recommended that you hire a professional service or law firm. If you choose to use an attorney to help you create this document, the price will be around $500 for a single-member LLC and $2,500 for a multi-member LLC. 

Who Needs my LLC Operating Agreement?

One of the key reasons to have an operating agreement in place is that it makes your LLC more appealing to financial backers. Banks are likely to request to see your operating agreement when you apply for a loan. If you seek funding from investors, they will also want to see your operating agreement. 

Conclusion 

Though not legally required in Michigan, an operating agreement is a crucial document for LLC operations, ensuring your company is able to access adequate financing and settle any disputes. Keep in mind, you do not need to file your operating agreement with any state body. You simply need to take certain steps to ensure it’s legally binding and keep it in your records. 

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