South Dakota LLC Operating Agreement Template

In South Dakota, 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 South Dakota 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 South Dakota LLC’s Operating Agreement Include?

Here are key elements you should include in a South Dakota LLC Operating Agreement:

1. Percent of Ownership: Clearly define each member’s ownership percentage in the LLC. This typically corresponds to the amount of capital they initially contribute. It is essential to establish this early on, as it affects profit distribution, voting rights, and other aspects of the business.
2. LLC Management Structure: Specify whether the LLC will be member-managed or manager-managed. In a member-managed structure, all members are involved in day-to-day operations, while in a manager-managed structure, a designated manager or group of managers handle daily operations.
3. Members’ Roles and Responsibilities/Decision Making: Outline the roles, responsibilities, and decision-making authority of each member or manager. This includes voting rights, the process for making decisions, and the level of involvement in the company’s day-to-day operations.
4. Capital Contributions and Distributions: Document the initial capital contributions of each member, and the process for making additional contributions in the future. Specify the procedure for distributing profits, losses, and how cash distributions will be made.
5. Record Keeping and Financial Reporting: Establish requirements for maintaining the company’s financial records and the frequency of financial reporting to the members. This includes the preparation of balance sheets, profit and loss statements, and tax documents.
6. Tax Classification: Indicate how the LLC will be taxed (as a sole proprietorship, partnership, or corporation). South Dakota LLCs have flexibility in choosing their tax structure, so consult with a tax professional to determine the best option for your business.
7. Member Meetings: Specify the frequency, location, and procedures for conducting member meetings. Include details on how to call a meeting, notice requirements, quorum, voting procedures, and any other relevant rules.
8. Admission and Removal of Members: Outline the process for admitting new members and removing existing members. This should include the criteria for membership, buy-in process, buyout process, and any voting rights associated with these actions.
9. Transfer of Ownership: Detail the procedures for transferring ownership interests in the LLC. This may include restrictions on transfers, rights of first refusal, and any other conditions that must be met before an ownership interest can change hands.
10. Dispute Resolution: Establish a process for resolving disputes among members or between members and the LLC. This may involve mediation, arbitration, or other alternative dispute resolution methods to avoid lengthy and expensive court battles.
11. LLC Dissolution: Specify the conditions and procedures for dissolving the LLC, including the distribution of remaining assets, payment of outstanding liabilities, and any required notices or filings with the state.
12. Amendments to the Operating Agreement: Establish a process for making amendments to the Operating Agreement. This typically includes requirements for member voting, written notice, and any other steps necessary to adopt changes to the agreement.

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 South Dakota 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. 

The guidelines provided here are broad in nature and should be tailored to suit the unique requirements of your LLC and its members. Furthermore, seeking advice from an attorney experienced in business law can help guarantee that your Operating Agreement is all-encompassing and adheres to the laws and regulations of South Dakota state.

By addressing all the important elements in your South Dakota LLC Operating Agreement, you can establish a strong foundation for your business and protect the interests of all members involved.

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 South Dakota, 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.