Every Alabama LLC owner should have an operating agreement in place to safeguard their company’s operations. While not legally needed by the state, having an operating agreement will create clear norms and expectations for your LLC while establishing your legitimacy as a legal company.
WHAT IS AN OPERATING AGREEMENT FOR AN ALABAMA LLC?
An operating agreement is a legal document that describes an LLC’s ownership structure and operational practises.
Whether you form a single-member or multi-member LLC, your operating agreement should include all of the following subjects. Some of these requirements will have little impact on the day-to-day operations of a single-member LLC, but they must be included for legal purposes.
Organization: When the LLC was founded formally, who its members are, and how ownership is shared. Multi-member LLCs may have an equal ownership structure or give individual members different “units” of ownership.
Management and Voting: Whether the LLC will be governed by its members or by an appointed manager, and how members will vote on business concerns. Each member typically has one vote, but you may want to give certain members greater voting power than others. Read our Member-Managed vs. Manager Managed guide for additional information on managing your LLC.
Capital Contributions: The amount of money invested in the firm by each member. This is also where you should plan how you can raise extra cash in the future.
Distributions: How revenues and losses are distributed among members. The most typical method is to divide earnings equitably. If you want them distributed differently, make that clear in your operating agreement. For more information on the fundamentals of LLC ownership, see our Contributions and Distributions guide.
Membership Structure Changes: How positions and ownership will be transferred if a member departs the firm. The method for buying out and/or replacing a member must be outlined in the LLC’s governing agreement.
Dissolution: If all of the members of your LLC decide that you no longer want to do business, you should formally dissolve it. An essential component of your operating agreement is outlining the hypothetical process of dissolving your firm. Read our Alabama LLC Dissolution page to understand how to dissolve your Alabama LLC.
WHAT IS THE PURPOSE OF AN ALABAMA LLC OPERATING AGREEMENT?
An operating agreement is required regardless of the kind of Alabama LLC you establish. Why?
The state has recommended it. An operating agreement is strongly recommended under Alabama Business Code Section 10A-5A-1.08.
It will keep your business partners from clashing. If you’re launching a multi-member LLC, having an operating agreement can minimise misunderstandings amongst your team by defining clear expectations about each partner’s position and obligations.
It contributes to the preservation of your limited liability status. If you are the only owner of a single-member LLC in Alabama, having an operating agreement will assist to guarantee that your limited liability status is sustained by court authorities, as well as contribute to the overall legitimacy of your firm.
AFTER CREATING YOUR ALABAMA LLC BUSINESS AGREEMENT
You do not need to submit your operating agreement with your state after you have completed it. Keep a copy for yourself and distribute copies to the members of your LLC.
Following every significant corporate event, such as the addition or removal of a member, it is prudent to examine and consider amending the operating agreement. Depending on how your operating agreement is worded, an update to the contract may need the approval of some or all of the members.