Starting an LLC may involve filing articles of organization with the state and establishing internal ground rules for how your business should operate. Establishing your credibility as a legal entity is a part of the plan.
Every LLC in NC is encouraged, but not required, to have an operating agreement to safeguard the company’s operations, from organization to dissolution. It ensures that all LLC members understand their roles and responsibilities. This page guides you in making a North Carolina operating agreement.
On this page, you’ll learn about the following:
North Carolina LLC Operating Agreement Content
An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. Topics not restricted to a single member or multi-member LLC will be covered. While these provisions might not influence day-to-day operations, they must be included for legal reasons.
- Ownership: The operating agreement details who the members are and how ownership is divided, be it a sole proprietorship or LLC. Sole proprietorship refers to a single person with total control over a business, also known as a single-member LLC. Multi-member LLC members can have either equal or varying ownership interests.
- Management: Your LLC could be member-managed or manager-managed. The former means members can decide regarding contracts with third parties; the latter means only designated managers can do so. Using “manager-managed” instead of “hands-on” can reduce administrative work. Management’s authority is also limited in the Operating Agreement.
- Voting: Define each owner’s voting rights and voting thresholds, such as a majority vote, supermajority vote, and unanimous consent. A variety of approvals are needed for each type of decision.
- Changes in Membership Structure: If someone leaves the company, how will roles and ownership be transferred? A member buyout and/or replacement procedure must be outlined in the LLC’s governing document.
- Contributions: All types of contributions are accepted. In order to fund their ownership interests, members will have to invest in the collective funds.
- Equity Splits: Determine equity for each member, taking into consideration things like their contributions, responsibilities, and fairness. Maintaining fairness in your equity split will help prevent future disagreements.
- Transfers: You may want to consider outlawing transfers of ownership interests without the consent of all owners. It’s always a good idea to include permitted transfers, such as first refusal, drag-along rights, tag-along rights, and estate planning transfers.
- Business Restrictions: To protect the privacy of the company, including confidentiality obligations. You may also ban the owners from owning competing businesses.
- Intellectual Property: Detail; the ownership of intellectual property created by members. Make sure all company-created intellectual property is owned by the company. You can find alternative ownership/license structures if necessary.
- Taxation: Determine how you will be taxed and plan accordingly. Remember, however, that you must file an LLC annual report and might be required a sales tax.
- Guaranteed Payments: Determine if any of the members should receive Guaranteed Payments, which are like a salary, particularly if your LLC is taxed as a partnership.
- Distribution & Dividends: Explain to all members how the funds will be allocated. A pass-through entity will impose tax distributions regardless of profit distributions.
- Dissolution: The LLC should be dissolved if all members elect to cease operations. It is important to identify how you will end your business in your operating agreement.
Note that the operating agreement, though not a legal requirement in most states, is vital in the operation of your LLC. Should your members have issues with the business, you can deal with it with guidance from the operating agreement.
Get Help from a Registered Agent
Developing an operating agreement could be tedious at times. Besides, since it deals with how your business operates, then it would be best to have professionals help you with it to make sure you get everything right. Getting help from registered agents would be your best bet. Here are three of our best LLC services that can provide you with registered agents to free you of worries:
Importance of a North Carolina LLC Operating Agreement
North Carolina doesn’t require the creation of an operating agreement if the LLC is registered. Most states require that all business entities be incorporated to verify the business structure. In North Carolina, it is possible to skip this step while creating the LLC and it won’t attract any fines from the law.
But, it is an essential step to ensure that the business, as well as its owners, are protected from any miscommunications. Here are some reasons why LLC members should have an LLC agreement.
- To protect the LLC: The operating agreement defines the regulations and rules of the LLC. If the members fail to follow the rules, they will be operated according to the rules of the government. The agreement could protect the LLC’s rights and offer additional benefits.
- An LLC makes it look trustworthy when investors look at companies, they will always assess the professionalism of the business. The operating agreement makes the LLC professional. It indicates to the members that they are concerned about the business. They would like all regulations and rules to be legally binding. This helps grow the business by attracting investors.
- To be legal: LLCs have limited liability status. Operating agreements must clearly define this so that the government does not confuse. An operating agreement is an opportunity to prove that they are different.
- To settle conflicts: There may be future disputes concerning distributions and decisions. The operating agreement contains the procedures, requirements and guidelines that apply to all members of the company. The operating agreement permits members to review quickly the details of the agreement prior to when they start performing the task.
- LLC flexibility: Limited Liability Companies should be flexible. It is in their nature. This is exactly what the operating agreement does. The legality of the operating agreement grants the LLC freedom.
- For opening accounts with banks for businesses: Often, the owner must have a copy of the operating agreement. The company will have difficulty opening an account with a bank in the absence of the original document.
How to Edit Operating Agreement of LLC in North Carolina
Operating Agreement of LLC in North Carolina can be edited when all the members agree to the amendment(s). You do not need to file it with the state.
Having an operating agreement is a must for every North Carolina limited liability company owner. An operating agreement not only defines how the business will be operated, but also defines the legal structure of the business. It may also include provisions relating to management, members, or the distribution of profits. However, an operating agreement does not necessarily have to be written. Depending on the circumstances, an oral agreement may suffice. Regardless of the method used to create the agreement, it is important that it is clearly communicated to all participants.
One of the simplest ways to amend the operating agreement is to simply change the registered agent. Alternatively, you can also change the address of the company’s principal office. The registered agent is the individual who represents the company in the state of North Carolina. If you do choose to change your registered agent, be sure to file a change of agent form and a change of address form. You can also change the name of the LLC if you so choose.
One of the more interesting aspects of the New Act is that it allows a member to delegate management to another. Before the new law, the Old Act ruled that managers could not delegate their duties without a formal written operating agreement. Now, managers can delegate their powers to other managers if a formal operating agreement is not in place. This is good news for both the manager and the LLC. While it may seem like a cliche, the ability to delegate can be a welcome respite from the constant stress that comes with being a manager.
Aside from the legal and practical aspects of delegating powers, the New Act provides members with some protection from liabilities. Specifically, it clarifies that members must act in accordance with the standards of conduct outlined in the operating agreement. In addition, it adds a layer of legal protection to those involved in the distribution of profits.
The New Act also enumerates the most important features of an operating agreement. For example, it clarifies the rules pertaining to management structure and records. These changes are intended to ensure the smooth operation of a North Carolina LLC. There are several steps to implementing these changes, but the most significant is the modification of the Articles of Organization.
Getting your head around the details of an operating agreement can be daunting. It is always a good idea to consult a lawyer for a thorough review. Fortunately, there are many useful tools and templates available online. Whether you are a first-time LLC owner or a seasoned professional, you should have a well-written operating agreement in place.
The most important thing to remember is that it is a good idea to check your operating agreement regularly. Moreover, you should never be tempted to modify it without consulting your lawyers first. After all, the laws of contract are ever-changing. Therefore, it is wise to prepare an updated operating agreement with the latest legal and procedural nuances in mind.
In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in North Carolina.
You and other members of the LLC will be unable to reach any agreements if you do not have an operating agreement. Even worse, your LLC must follow the state’s default operating conditions.
It is required by law in California, New York, Maine, and Missouri, but it is not in North Carolina. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.
The operating agreement is an important document for your North Carolina LLC. However, it is not mandatory to file in many states. It is strongly recommended to file the operating agreement even if it is not required in your state. Get a professional LLC service to file your operating agreement properly.