North Carolina LLC Operating Agreement Template

In North Carolina, 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 North Carolina 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 North Carolina LLC’s Operating Agreement Include?

Here are some key components that should be included in a North Carolina LLC’s Operating Agreement:

1. Company name and principal office: Clearly state the full legal name of the LLC and the primary location where the business will operate.
2. Purpose of the business: Describe the nature of the business and the purpose for which the LLC is formed. This can be broad to allow for future changes in business activities.
3. Duration: Indicate if the LLC will have a perpetual existence or a predetermined dissolution date.
4. Membership: List the names and addresses of all the members, along with their initial capital contributions and ownership percentages.
5. Management structure: Specify whether the LLC will be managed by its members or by appointed managers. Detail the roles, responsibilities, and decision-making authority of the members or managers. 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. 
6. Voting rights and procedures: Define the voting rights of members or managers, the percentage needed for decision-making, and how votes will be conducted.
7. Capital contributions and distributions: Outline the process for members to make additional capital contributions, and how profits and losses will be allocated and distributed among members.
8. Allocation of profits and losses: Detail the method for allocating profits and losses among the members, typically in proportion to their ownership percentages.
9. Meetings: Set the frequency, location, and notice requirements for regular and special meetings of members or managers.
10. Admission of new members: Establish the process for admitting new members, including their capital contributions and any changes to the existing members’ ownership percentages.
11. Sale or transfer of membership interest: Specify the procedures and restrictions for transferring membership interests. This may include rights of first refusal, consent requirements, or the creation of a buy-sell agreement that outlines the process for valuing and purchasing the interest of a departing member. This may involve using a specific valuation method, such as book value, fair market value, or a professional appraisal, and setting up a payment schedule or financing options.
12. Dissolution and winding up: Describe the circumstances under which the LLC may be dissolved, and outline the process for winding up the business, paying off debts, and distributing any remaining assets to the members.
13. Disability of a member: Define what constitutes a disability and explain how it will impact the member’s involvement in the LLC. This may involve reallocating management responsibilities, adjusting profit distributions, or providing an option for the disabled member to sell their interest.
14. Death of a member: Establish the process for handling a member’s interest upon their death. This may include:
    • a. Allowing the deceased member’s heirs or estate to inherit the interest, subject to the LLC’s transfer restrictions.
    • b. Providing the LLC or the remaining members with the option to purchase the deceased member’s interest, typically based on a predetermined valuation method.
    • c. Establishing life insurance policies for the members, with the LLC as the beneficiary, to provide the funds necessary for purchasing the deceased member’s interest.
    • d. Detailing any changes in management roles and responsibilities following the member’s death.
15. Amendments: Detail the process for amending the Operating Agreement, including the required approval and any notice requirements.
16. Governing law: Specify that North Carolina law will govern the Operating Agreement and any disputes arising out of it.
17. Miscellaneous provisions: Include any additional clauses, such as confidentiality, indemnification, dispute resolution, and severability, as needed for the specific LLC.

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 North Carolina 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.  

By addressing these situations in your Operating Agreement, you can create a clear and well-defined process for handling changes in membership, which will help minimize potential conflicts and ensure continuity for the LLC’s operations. It is advisable to consult with an attorney or a legal expert when drafting these provisions to ensure they comply with North Carolina state law and address the specific needs of your LLC.

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 North Carolina, 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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