Hey there, go-getter entrepreneur! Don't you just love the smell of ambition in the morning? Now, I know you're wondering what the heck a Washington D.C. LLC Operating Agreement is. Well, in layman’s terms, it's a blueprint for your Limited Liability Company, laying down all the ground rules that guide your business operations. Think of it as an operator’s manual tailored specifically for your LLC.
This document, steered by the laws of Washington D.C., deals with the nitty-gritty that keeps your business on-track. We're talking everything from describing member roles to defining how the decision-making process works, to even making a game plan for dispute resolution. It's like that dependable friend who's available with accurate directions when Google Maps gives up.
No, it's not legally required in Washington D.C. under § 29–801.07. 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 Washington D.C. operating agreements, including:
Here are some key components that are typically included in a Washington D.C. LLC operating agreement:
Glad you asked—let's dive straight into the key components of the agreement, shall we?
Hopefully, you've settled on a catchy name for your LLC (The label you picked when you submitted your LLC formation paperwork). Here, you also need to articulate the purpose of your enterprise. No need to get elaborate. In fact, a broad statement can prove beneficial, allowing you to venture in new directions without needing to update your 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.
In this segment, you identify your LLC as either member-managed or manager-managed. You also spell out the obligations, privileges, and the investment made by each member, along with the management landscape. This step is non-negotiable, even if you're the only member, to stamp your authority on 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 function of a registered agent? To receive and manage significant paperwork on behalf of your enterprise. While including this in the operating agreement is optional since it's already listed on your state formation documents, it certainly doesn't hurt to repeat important information.
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.
"Term of an LLC" refers to your business's lifespan. It's how long your LLC is slated to exist, as detailed in your formation documents. While the majority launch their LLCs intending to run them indefinitely, you can also go for a fixed timeline.
By default, LLCs are treated as "perpetual" in most states, denoting they're immortal since they can exist as long as you desire. Most LLCs in Washington D.C. stick with an indefinite existence. Here's a sample provision:
The duration of the Company will be perpetual.
Capital contributions are basically the resources you pour into your LLC to set the wheels in motion. It's analogous to the initial investment raising your business from the ground up. As a single-owner LLC, the capital contribution is all on you, also handing you the freedom to decide the amount of resources you invest in your enterprise.
Documenting these contributions correctly is paramount as it presents a transparent image of your business's financial blueprint and proves essential for tax-related considerations.
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
This is your LLC's legal safety net. An indemnification clause in your operating agreement serves to shield the members of your company from falling under the financial strain of legal troubles linked to company-related duties. In simpler words, your LLC has got your back, covering legal expenses or damages if you're sued for actions connected with your work for the enterprise.
The agreement should be crystal clear on when and under which circumstances this padding will kick in, along with any exceptions. A great rule of thumb is to remember that indemnification generally won't cover intentional wrongdoing or serious negligence. Tailor these terms to your business's specific risks to ensure you're truly covered when you need it.
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.
Fulfilling your taxes is a crucial aspect of running a company. Your Washington D.C. LLC can be taxed in one of four ways: as a sole proprietorship, a partnership, an S corporation, or a C corporation. The specifics of how your LLC is taxed depends on the headcount and the tax status your enterprise chooses with the IRS.
Include sections related to tax status in your operating agreement. Discuss your elected tax status, how to modify it, and tax returns and allocations handling (if applicable). This solidifies your strategy on managing business finances, from profits, losses, dividends to taxes, acting as a clear roadmap for any tax-related issues that surface in your business journey.
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 lays out the details of when your LLC will let the cash roll out from its profit. For single-member LLCs, this is not such a big deal. For multi-member LLCs, it's crucial to highlight when, how, and under which conditions distributions will occur.
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.
If an amendment is required in your LLC at any point, you revert to the stipulation about LLC amendments in your agreement. For single-member LLCs, this is a breeze, while multi-member LLCs need to give it some serious thought, concentrating on voting percentages and requirements to tweak 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.
LLCs by nature generally don't have to follow corporate formalities unlike corporations. However, it's usually wise to include a waiver of all formalities in the operating agreement to maintain your corporate veil.
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.
It's crucial to have a game plan for worst-case scenarios. Hence, you devise a strategy on how to dissolve your LLC and decide who will take the reins in case of your absence.
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 of your operating agreement is the day it kicks into action.
No need! Unlike your articles of organization (Or Certificate of Formation, depending on your home state), your operating agreement is a private document that you keep within your company's archives. Just sign it and keep a copy handy—you won't need to file it.
Dreaming of growing your business? Great! If you're ready to welcome another member to your LLC, you'll have to redo the above paperwork according to the agreement between you and the new partner. A multi-member operating agreement is considerably different from a single-member one.
And there you have it! That's all you need to know about crafting a compelling Washington D.C. LLC Operating Agreement. Remember, just like a daring business move, it may seem complicated at first, but once you get past the initial hump, it's a smooth ride. Good luck!
