A New York LLC Operating Agreement, in easily understood terms, is essentially a tailor-made design for your LLC, creating a lucid layout for its daily operations. Imagine us engaged in a relaxed coffee conversation, and I describe this as your customized guide: detailing how your business is directed, giving you control over aspects like ownership division, the system of making key decisions, and planning for any leadership changes in the future.
In this agreement, required under New York law, you'll outline critical aspects such as member roles, decision-making processes, and ways to resolve disputes - providing a roadmap to avoid misunderstandings down the line.
Yes, it's legally required in New York under § 417. 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 New York operating agreements, including:
Here are some key components that are typically included in a New York LLC operating agreement:
Let's move on to writing your operating agreement and exploring some common provisions, complete with sample language to help you get started.
By this stage, you've probably already named your LLC (i.e., the name you assigned when filing your formation documents). However, you also want to include the purpose of your LLC. There's no need to be overly specific; keeping your statement broad makes it easier to expand your business without having to refile.
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.
Here, you'll specify if your LLC will be member-managed or manager-managed. This section also highlights the rights and responsibilities of each member, including capital contributions, voting rights, and your preferred management structure. For single-member LLCs, this part might seem unnecessary, but it's vital for establishing the groundwork for your company.
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 the person assigned to receive and manage vital documents on behalf of your business. This role may be included in your LLC operating agreement, although it's not mandatory since you'll already list the registered agent in your formation documents filed with your 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.
Your LLC's term is essentially its lifespan. It's the period in which your LLC is intended to exist, as outlined in your formation documents. While many entrepreneurs form LLCs with the intention of allowing them to operate indefinitely, you may also choose to specify a fixed duration or end date for your LLC.
In most states, LLCs are considered "perpetual" by default, meaning they can exist for as long as you see fit. In New York, a majority of LLCs are perpetual in nature. Consider including a sample provision to clarify this point.
The duration of the Company will be perpetual.
Capital contributions refer to the funds, property, or services you provide to your LLC to jumpstart its operations. Essentially, it's your initial investment to get your business up and running. As the sole owner of a single-member LLC, you can determine how much money or assets to invest.
Properly documenting your capital contributions is crucial, as it gives a clear snapshot of your company's financial structure and provides vital details for 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
The indemnification clause in an LLC's Operating Agreement serves as a protective barrier safeguarding the company's members from certain expenses associated with potential legal issues deriving from their services for the business. This implies that the LLC will shoulder any legal fees or losses if a member faces a lawsuit pertaining to their role in the enterprise.
The agreement should transparently underline when and under what conditions the LLC will provide this protection, and list any exceptions. In most cases, indemnification would not cover intentional misconduct or gross negligence. Tailoring these terms to your organization's unique risks is crucial to ensure suitable 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 New York LLC can be taxed as a sole proprietorship, partnership, S corporation, or C corporation. Your company's tax status depends on the number of members and the chosen tax status you've elected with the IRS.
Your LLC's operating agreement should include sections that provide details on tax status. These parts cover topics like your preferred tax status, potential changes, and your strategy for handling tax returns and allocations. A crucial element here is having a lucid plan to manage any tax-related issues.
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.
This clause is where you detail when your LLC will distribute the revenue it generates. For single-owner LLCs, it's fairly straightforward. For multiple-owner LLCs, it's paramount to specify the timing, prerequisites, and method of the distributions.
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.
When you need to modify any term in your LLC, you just follow the guidelines in your LLC amendment clause. For single-owner LLCs, it's simpler. For LLCs with multiple members, it's crucial to think it through thoroughly and take into account considerations like voting percentages and amending the operating agreement requirements.
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.
LLCs typically aren't required to adhere to corporate formalities. That's usually more applicable to corporations. However, not adhering to formalities could decrease the likelihood of maintaining your corporate veil. As a safeguard, you may want to include a formalities waiver in your operating agreement.
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 clause outlines your plan if things don't proceed as expected. It provides guidance on dissolution processes for your LLC and stipulates who will retain control in situations such as death or other unfortunate circumstances.
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 effective date is the date when your operating agreement comes into effect. It's essentially the day your agreement becomes operative.
There's no need! Contrary to your Articles of Organization (or Certificate of Formation, based on your state), your operating agreement is an internal document kept within your company's records. Just sign it and retain a copy so you can reference it when needed, nothing else required.
Many small business owners fantasize about one day expanding their business beyond what they can manage alone. If you get to this exciting point and need to add another member to your LLC, you'll need to revisit and revise the paperwork in accordance with your agreement with your new partner. Typically, you may want to draft a new agreement, as agreements for LLCs with multiple members are considerably different from those with just a single member.
