A Utah LLC Operating Agreement can best be described as your LLC's master plan or roadmap. It sets out the rules for how your enterprise will be steered, including areas such as ownership stakes, decision-making procedures, and succession planning.
Under Utah statute, it's in this agreement you'll consolidate vital aspects such as roles of members, decision-making procedures, and dispute resolution methods - creating a clear guide to bypass potential pitfalls and confusion down the line.
No, it's not legally required in Utah under § 48-3a-112. 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 Utah operating agreements, including:
Here are some key components that are typically included in a Utah LLC operating agreement:
Now let's dive into how to craft your operating agreement. Below, we'll explore each common provision and provide samples you can use as a foundation.
By now, your LLC's name should be at your fingertips, thanks to the LLC formation document you filed with Utah. Here, though, you'll need to describe the purpose of your LLC. There's no need to dive into excessive detail. In fact, a broad statement keeps the door ajar for future opportunities without needing to modify official records.
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 the area where you'll dictate whether your LLC is member-managed or manager-managed. It helps establish the privileges and obligations of each associate, including capital contributions, voting rights, and leadership structure. Sometimes, this might seem like overkill, especially if you're the only member. Still, it's crucial in shaping your single-member LLC.
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 essentially your company's go-to person for handling critical documentation on the LLC's behalf. While it's sometimes included in LLC operating agreements, it isn't a hard and fast requirement since this is initially listed on your formation records filed with Utah.
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.
The 'duration of an LLC' is like a lifespan of your Limited Liability Company. It tells us how long your LLC is designed to exist, as revealed in your formation documents. A portion of business leaders establish LLCs with the goal being to operate indefinitely. However, you carry the choice to designate a fixed timeframe or expiration for your LLC.
In a broad sweep of states, LLCs are "perpetual" by default, in other words, they can exist indefinitely. It's the same case for many LLCs in Utah.
The duration of the Company will be perpetual.
Capital contributions, these are the resources—money, assets, or services—you impart to your LLC to put it into motion. Consider it your initial contribution to get your firm off the ground. For single-member LLCs, capital contributions can be wholly from yourself, the sole owner, allowing you to dictate how much of your resources you wish to invest in your venture.
A crucial step here is to thoroughly record your capital contributions. Doing so serves to paint a clear picture of your establishment's financial foundation and can provide critical specifics for fiscal matters.
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 provisions in an LLC's Operating Agreement are like an emergency safety net. They secure members from assorted costs associated with potential legal complications tied to their responsibilities for the LLC. In vernacular terms, the LLC covers any legal bills or damages if a member is slapped with a lawsuit related to their tasks for the firm.
Naturally, the agreement should unambiguously define when and under which scenarios the LLC will offer this cover, alongside any exceptions. For instance, intentional malpractice or egregious carelessness generally wouldn't fall in the zone of indemnification. Adjusting these conditions to your business's unique risks plays a crucial role in guaranteeing adequate safeguarding.
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 Utah LLC can go one of four routes when it comes to taxation: it can be treated as a sole proprietorship, partnership, S corporation, or C corporation. Your tax status will be influenced by the number of members and the tax status you select with the IRS.
Sections concerning tax status should certainly be included in your LLC's operating agreement. These portions handle your selected tax classification, the methods for altering it, and strategies for dealing with tax returns and allocations. By laying out these strategies, your LLC will have a clear plan for managing important financial matters, including profits, losses, distributions, and taxes. The goal here is transparency, serving as a navigable guide for any tax-related issues that could spring up over the lifespan of your business.
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.
The profitability distributions clause in your agreement covers the timing and process around when the LLC dispenses any money it generates. If you're the only member, it's not a big deal. However, for multiple-member LLCs, it's important to outline who gets what, when, and how these distributions will be carried out.
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.
Need to alter something in your LLC? No problem – just adhere to the amendment clause in your agreement. With a single-member LLC, it's pretty straightforward. But for multiple-member LLCs, this area should be carefully considered, particularly around voting percentages and requirements to revise 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 their very nature, LLCs often aren't required to follow corporate formality rules. But sometimes, non-adherence to these rules could potentially undermine your corporate veil. To avert this, it's always a good idea to include a formality waiver in the 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 comes into play when the sailing is not so smooth, outlining steps on how to dissolve your LLC. Additionally, it stipulates who retains control of the LLC in the event of your untimely death or inability to continue.
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.
The effective date refers to when the agreement officially comes to life. Or, put another way, it's the day the agreement starts 'doing its thing.'
Nope! Unlike your Articles of Organization, your operating agreement is an internal record nestled in your company's files. Once you've signed it, simply keep a copy handy to refer to when necessary.
We all hope for the day when our venture grows beyond our individual capacity. If fortunate enough to land in that enviable position ready to introduce another member to your LLC, you'll have to revisit and probably recreate the aforementioned paperwork in line with the consensus reached with your new partner. It's likely you'll need a new agreement, given the dissimilarities between single-member and multiple-member LLC agreements.
