A Nevada LLC Operating Agreement, in non-technical language, could be considered a tailor-made plan for your LLC, establishing a streamlined framework for day-to-day operations. Picture us catching up over a cup of coffee, and I describe it as your unique playbook, formulating guidelines on how your business functions, including the distribution of ownership, decision-making flow, and planning for future leadership changes.
Incorporating Nevada's LLC laws, you'll use this agreement to delineate foundational elements like the commitments of members, the methodology of decision-making, and ways to tackle disputes - essentially, you're creating a reliable guide to bypass potential misinterpretations on your path as an entrepreneur.
No, it's not legally required in Nevada under § 86.286. Single-member LLCs need an operating agreement to preserve their corporate veil and to prove ownership. And multi-member LLCs need one to help provide operating guidance, determine voting rights and contributions.
Read on to learn more about Nevada operating agreements, including:
Here are some key components that are typically included in a Nevada LLC operating agreement:
Wondering how to draft your operating agreement? Let's break down the common clauses with examples for each to assist you.
Hopefully, you have already decided on your LLC's name (the one you used while filing your LLC formation document with the state), but it's also crucial to elaborate on your LLC's purpose. While you might be tempted to go into detail, keeping your mission statement broad allows flexibility for future growth without needing to refile any documents.
OPERATING AGREEMENT of [COMPANY NAME]
This operating agreement is adopted as of [Date] (the “Effective Date”), by [Member’s Name] , an individual and the sole member (the “Member”) of [Company Name] (the “Company”).
The Member hereby adopts this agreement as the operating agreement of the Company, which agreement sets forth the entire understanding of the Member regarding its subject matter and supersedes all prior understandings and agreements regarding its subject matter.
The purpose of the Company is [ Company Purpose] , and the conduct of other activities as may be necessary or appropriate to promote the stated purposes, and to engage in any other lawful business or activity for which a limited liability company may be organized under the Act.
This is where you decide whether your LLC will be manager-managed or member-managed and outline the rights and responsibilities of each member, including their contributions, voting rights, and the management framework. Even though it might seem unnecessary as the sole owner in a single-member LLC, it's fundamental for laying the groundwork.
The business and affairs of the Company will be managed by the Member. The vote, action, decision, or consent of the Member will constitute a valid decision of the Member and the Company. The Member may appoint one or more officers (including the Member, if the Member is an individual) who will have such powers and authority to act on behalf of the Company granted to them by the Member.
The business and affairs of the Company will be managed by the manager of the Company and any successor thereto appointed by the Member, which manager may also be referred to as the Company’s president (the “Manager”). The initial Manager will be [Manager Name] , who will serve until the Manager’s death, removal by the Member (for any reason or no reason), or resignation. The Manager will have the right and authority to manage the affairs of the Company and make decisions and take action with respect thereto without further approval or consent of any kind by the Member. Except as otherwise required by this agreement and in lieu of any limitations set forth in [State Name] ’s laws for limited liability companies (the “Act”), the Manager will be solely responsible for and is hereby authorized to manage and operate the business of the Company. Except to the extent that the authority of the Manager is expressly limited by the Member, the vote, action, decision, or consent of the Manager will constitute a valid decision of the Manager and the Company.
The registered agent is a responsible individual assigned to accept and address relevant corporate documents on behalf of your entity. While some LLC operating agreements incorporate this, it's not vital because this is already listed on your formation documents filed with your organizing state.
The Company’s registered agent in State is: Registered Agent Name , Address . The members may designate other registered agents or offices at any time in this state or, if necessary, in other states.
Consider the "term of an LLC" as your LLC's allotted lifespan. Essentially, it's the time frame your LLC is designed to last, as stated in your formation documents. While most business proprietors form LLCs intending to keep them running indefinitely, you also have the option of setting a definite period or termination date for your LLC.
In many states, LLCs by default are seen as "perpetual," meaning they have a lifespan as long as you want. Most LLCs in Nevada pick a perpetual duration, but including it in your agreement prevents any confusion.
The duration of the Company will be perpetual.
Capital contributions represent the funds, real estate, or services that you lend to your LLC to begin its operations. Consider it the first investment you make to kick off your business. In a single-member LLC, capital contributions could be entirely your input which gives you the power to decide how much capital you'd want to invest into your business.
Properly documenting your capital contributions is crucial. It helps paint a clear image of your firm's financial structure and provides pertinent data for accounting and tax purposes.
The Member’s capital contribution(s) to the capital of the Company for the Member’s membership interest in the Company will be reflected on the books and records of the Company.
The members have made or shall make the contributions of cash, property or services to the LLC as set forth on Exhibit A attached
Indemnification clauses in an LLC's Operating Agreement serve as a safety net, safeguarding the company's members from certain expenses related to legal issues that might emerge from their duties for the company. It means that if a member faces a lawsuit relevant to their responsibilities for the business, the LLC will bear any legal bills or damages.
Your agreement should explicitly specify when and under what conditions the LLC will offer this protection, along with any exclusions. Generally, indemnification does not cover deliberate misconduct or severe negligence. Customizing these terms to suit your business's specific risks is crucial to ensure adequate coverage.
The Member, the Manager, the officers, and the organizer of the Company and their respective affiliates, stockholders, members, managers, directors, officers, partners, employees, agents, trustees, and representatives (individually, an “Indemnitee”) will be indemnified by the Company against any and all losses, claims, damages, liabilities, expenses (including legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits, or proceedings, civil, criminal, administrative, or investigative, in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of the Indemnitee’s status as any of the foregoing, which relates to or arises out of the Company or its assets, business, or affairs, if in each of the foregoing cases (A) the Indemnitee acted in good faith and in a manner the Indemnitee believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful, and (B) the Indemnitee’s conduct did not constitute gross negligence or willful or wanton misconduct. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, will not, of itself, create a presumption that the Indemnitee acted in a manner contrary to that specified in clause (A) or (B) above. Any indemnification under this section 5 will be made only out of the assets of the Company, and the Member will not have any personal liability on account thereof.
Your Nevada LLC could be subject to one of four taxation categories: sole proprietorship, partnership, S corporation, or C corporation. Your LLC's tax character depends on the member count and the tax status your corporation selects with the IRS.
Ensure your operating agreement includes sections about tax status which discuss your preferred tax status, the procedure to modify it, and how you will manage tax returns and allocations (if relevant). It helps your LLC to plan how to handle business finances, including profits, losses, dividends, and taxes. Offering a transparent plan for handling any tax-related issues that can surface in your business is key here.
The Company will be disregarded for federal and state income tax purposes. The admission of one or more additional members, however, will cause the Company to be recognized for tax purposes, and to be taxed, as a partnership.
The Member acknowledges that the Company has elected to be taxed as a corporation for federal tax purposes pursuant to the regulations currently in effect under Section 7701 of the Code, and to be taxed as an electing small business corporation under the provisions of Subchapter S of the Code. Notwithstanding such tax treatment, the Member acknowledges and agrees that the Company will be a limited liability company, for state law purposes, under the provisions of the Act, the Articles of Organization, and this operating agreement.
The Member acknowledges that the Company has filed or will timely file a Form 2553 (Election by a Small Business Corporation) with the Internal Revenue Service and that the election made pursuant to the filing is or will be in force and effect covering all periods since the date of this operating agreement. Except as otherwise provided in this operating agreement, during the term of this operating agreement and the continuation of the Company’s “S” corporation election under Section 1362 of the Internal Revenue Code, no Member shall take any action which would cause the revocation or termination of the Company’s “S” election (under Section 1362(a) of the Internal Revenue Code) and any attempt to take such an action will be null and void and without effect. Without limiting the foregoing, and notwithstanding any provision hereof to the contrary, any transfer or attempt to transfer any membership interest to any of the following will be null, void, and without effect:
(a) a person whose ownership thereof would cause the Company to have a number of Members and assignees of membership interests (shareholders of an “S” corporation) greater than the number permitted by Section 1361(b)(1)(A) of the Internal Revenue Code;
(b) an individual who is not a United States citizen or resident;
(c) a trust (or the trustee thereof) which fails to satisfy the requirements of Section 1361(c)(2)(A) or 1361(d) of the Internal Revenue Code;
(d) a corporation; and
(e)any other entity whose ownership would cause the termination or revocation of the Company’s tax status as an “S” corporation.
Your profit and loss distribution clause just marks when your LLC will distribute the revenue it generates. While this seems trivial for single-member LLCs, for multi-member LLCs, you want to ensure you specify when, what's needed, and how the distributions will take place.
As the sole member of the LLC, the Member is entitled to all profits of the LLC and is responsible for all its losses. Profits and losses shall be determined annually and will be allocated to the Member's capital account. Distributions of cash or other assets will be made at such times and in such amounts as deemed appropriate by the Member.
So, what happens if you need to alter a term in your LLC? The solution is simple - follow the amendment clause outlined in your LLC. For single-member LLCs, it's usually simpler. But for multi-member LLCs, it warrants substantial consideration, especially when it comes to determining voting percentages required to approve the amendment to the operating agreement.
This agreement and the articles of organization of the Company may not be altered, modified, or changed, and no provision of this agreement may be waived, except by an amendment or waiver, as applicable, approved by the Member.
By nature, LLCs generally aren't obligated to follow corporate formality. More often than not, that's a requirement for corporations. However, in certain instances, not abiding by formality rules could jeopardize your corporate veil. Therefore, incorporating a waiver of all formalities in your operating agreement would be a prudent step.
The failure of the Company or the Member to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this operating agreement or the laws in the state in which the Company is which govern limited liability companies will not be grounds for imposing personal liability on the Member for liabilities of the Company.
This is your game plan for a scenario where things don't proceed as planned. It advises you on the steps required to wind up your LLC and appoints a person who would retain control of the LLC in instance of your inability to run the business.
Upon the occurrence of any event which terminates the continued membership of the Member in the Company, the Company will not be dissolved, and the business of the Company will continue. The Member hereby specifically consents to such continuation of the business of the Company upon any such event. The Member’s legal representative, assignee, or successor will automatically become an assignee of the Member’s interest and will automatically become a substitute Member in place of the withdrawn Member.
Your operating agreement's effective date is when your agreement officially comes into effect. Another way to conceptualize it—it marks the day the agreement becomes operational.
Not at all! Unlike your Articles of Organization (or Certificate of Formation, depending on your state), your operating agreement is a private document meant for record-keeping within your company. Once you sign it, save a copy somewhere easily accessible for future reference.
Most small business owners envision their businesses growing beyond their solo operations at some point. If you find yourself in that fantastic position and are ready to introduce a new member to your LLC, you will need to revisit the above paperwork as per the agreement between you and your new partner. Chances are, you'll have to draft a completely different agreement, as a multi-member operating agreement deviates considerably from a single-member operating agreement.
Remember, understanding the intricacies and significance of each section of your Operating Agreement is key to your LLC's smooth operations. This guide should help you create a robust and legally sound document, but we're here if you need more advice!
