Protect your business and partnerships with a comprehensive multi-member LLC Operating Agreement.
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Multi-member LLCs absolutely need comprehensive Operating Agreements. Without clear written agreements, state default rules apply and member disputes can destroy the business.
Key provisions for multi-member LLCs include: voting rights and thresholds, profit/loss allocation methods, member duties and restrictions, buy-sell provisions, and dispute resolution procedures.
The Operating Agreement should address both day-to-day operations and extraordinary events like member death, disability, divorce, bankruptcy, or desire to exit the business.
Define what decisions require unanimous consent vs majority vote. Common thresholds include ordinary business matters, major expenditures, and structural changes.
Establish procedures if the LLC needs additional capital, including whether members must contribute or can be diluted.
Create mechanisms for member exits including valuation methods, payment terms, and right of first refusal for other members.
Include tie-breaking procedures for 50/50 LLCs or when members cannot reach agreement on major decisions.
Consider restrictions on members competing with the LLC during and after membership.
Q: What happens if members disagree?
A: Your Operating Agreement should specify dispute resolution procedures, potentially including mediation or arbitration clauses.
Q: How are profits split if not specified?
A: Without an agreement, Wyoming law allocates profits and losses proportional to capital contributions, which may not match expectations.
Q: Can one member force out another?
A: Only if the Operating Agreement provides specific expulsion procedures. Otherwise, involuntary removal is very difficult.
Q: What is a buy-sell agreement?
A: Provisions governing when and how members can sell their interests, including to whom, at what price, and with what payment terms.
Q: Should we have non-compete clauses?
A: Consider them to protect the business, but ensure they are reasonable in scope and duration to be enforceable.