A Manager Managed LLC operating agreement is a legal document that clearly outlines both the authorities and duties of managers and the rights of members in a manager-managed LLC. Aside from the roles of management, this operating agreement is also meant to dictate how managers will be selected and replaced, how managers can step down, and how conflicts of interest will be handled in the LLC.
A manager-managed LLC is a limited liability company where one or more managers conduct the day-to-day operations of the business while the members assume a more passive role. This manager can be a member of the LLC or an outsider hired to run the business.
For manager-managed LLCs, an operating agreement is a very vital document as it helps to set very explicit rules and expectations for the LLC while also establishing its credibility as a legal entity. Although LLC members can be managers, it is not a must that they have to be. A manager can be an outsider primarily hired to help run the business.
Also, note that you can even list another LLC as the manager to further keep your information off public records. Larger Florida limited liability Companies with numerous members may find it convenient to appoint either a single manager or managers to carry out the daily operation of the company.
Manager Managed is more or less more suitable for companies where some members prefer to be a part of the daily operations while others prefer solely to contribute as initial investors in the enterprise.
However, If you have more than one manager (or more than one member assigned management duties), it is always necessary that the duties and responsibilities of each management role be explicitly stipulated so as to avoid confusion.
Components of a Manager Managed LLC Operating Agreement
A manager-managed operating agreement is expected to outline to very understandable extents the powers and duties of managers while also providing guidelines for members’ needs, such as transferring membership interest. While this agreement can vary from one company to another, a good manager-managed LLC operating agreement is expected to contain the following;
Table of Contents
Article I: Company Formation
Note that this first part of the LLC operating agreement is expected to do four vital things:
- Assert that the LLC has been formed by state laws and will carry out business within the bounds of the law
- State where vital business information (such as member info and registered agent) can be found
- Outline the events that can cause the termination of the business (and how members can continue the LLC)
- Describe how to add new members
Article II: Capital Contributions
You need to understand that one of the major aspects of starting an LLC is funding the business with initial capital contributions. Note that each member may have to contribute money or other assets in return for an ownership interest. In this sector of the operating agreement, you will have to outline the value of these contributions and investments. You may also have to state that additional contributions aren’t required.
Article III: Profits, Losses, and Distributions
In this sort of LLC, members don’t most often run the business—members are usually investors, and this means that they will be eager to know exactly how and when they will see some money. Profits and losses are to be determined annually and shared among members based on their percentage of ownership interest.
Once expenses and liabilities are paid, these distributions can be made annually as well (or more often). If the company or membership interest is liquidated, distributions will be expected to follow Treasury Regulations.
Article IV: Management
A good percentage of this section explicitly notes how managers will be selected and what their responsibilities and duties are. This section of the operating agreement is expected to explain that members will vote on one or more managers (electing one Chief Executive Manager as well). Once that is done, members will hand over management, control, and operations to the managers.
This section also states in good detail the responsibilities of managers, which may include making decisions, carrying out contracts and agreements, keeping records, and responding to member requests for information. Most often, the CEM is tasked with the primary operations of the LLC and with implementing the decisions of other managers.
It will also explain that managers aren’t liable for losses or damages to the LLC that had to do with the decisions and actions made in good faith. In the case of lawsuits or other actions, the LLC will have to see to the losses from expenses or judgments for those acting genuinely for the good interest of the LLC.
Article V: Compensation
This particular section of the operating agreement will have to note that managers are entitled to compensation for their services. Members or managers will also have to be reimbursed for LLC expenses paid out-of-pocket.
Article VI: Bookkeeping
Since the managers are tasked with the everyday running of the business they will also have to be responsible for keeping financial records.
This section provides information and specifics concerning the bookkeeping of the company and will have to explain that managers are expected to keep separate capital and distribution accounts for each member and keep books on a calendar year. At the end of the year, managers will have to close the books and also make ready a statement for each member.
Article VII: Transfers
Members will need very explicit guidelines on how they can leave their roles and transfer their membership interests to someone else. This section will have to explain these details, and also offer other members the first rights to purchase, while also noting that members will have to collectively approve a sale for the recipient to get any voting rights. If there’s no buyer, the LLC can choose to assign the interest to current members.
The sole aim of this section of the operating agreement is to maintain a fair valuation of membership interest. Sellers will most definitely want high valuations and buyers want low valuations; owing to that, this section ensures that both sides have input and can defer to a third-party appraiser in event of any dispute.
Article VIII: Dissolution
Members also have the right to end the LLC through the process of dissolution. Owing to that, this section will have to explain that if the company is dissolved, the LLC is tasked with paying debts before making any distributions to members.
Certification of Members
Have in mind that this is the signature page of the operating agreement. Note that every member will have to sign to concede that they concur to abide by the terms of the agreement.
These are more or less fill-in-the-blank forms at the end of the operating agreement. Note that these forms may have to include places where you can list individual manager information, member information, and capital contributions.
Regardless of the type of management you select for your LLC, it is imperative you have a detailed operating agreement to outline the day-to-day functioning of the company and the processes for making business decisions. If your company is to be managed by one or more managers, it is also important that you note the roles of each manager in the operating agreement.
Aside from that, this agreement should explain rules and procedures for choosing managers, their resignation and removal, the course of action to be followed in the case of a dispute, and other matters to ensure the seamless functioning of the company.