Welcome aboard, entrepreneur! You're crafting a Washington LLC Operating Agreement, and that's no small feat. Think of it as the master planner for your new Limited Liability Company—your LLC's personal instruction manual. It outlines your business's structure, decision-making procedures, and paths to resolving disputes if they arise.
This agreement, governed under Washington State's LLC laws, is your guiding light. It emphasizes important elements like member tasks, how to make decisions, and strategies to dissolve conflicts—offering a roadmap for your business journey.
No, it's not legally required in Washington under § 25.15.018. 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 operating agreements, including:
Here are some key components that are typically included in a Washington LLC operating agreement:
Don't worry; we've got a guide on the customary covenants with sample language for each to assist you.
At this stage, you're already acquainted with your LLC's name (it's the one you chose when submitting your formation documents). Aside from identifying the LLC, you also need to articulate its purpose. You can keep this general, so you're covered and don't have to revise each time you diversify.
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 part, you state if your LLC is managed by its members or managers. You detail the specific rights, tasks, and investment made by each member, along with the management structure. Even as a single manager, it's key to carve this out for your single-member LLC setup.
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.
Your registered agent's role is to accept and manage significant paperwork for your company. Including this in the operating agreement is optional as it's already listed on your state formation documents.
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 term of an LLC is equivalent to your business's lifespan. You describe what you foresee as the length of your LLC's existence in formation documents. While most embark on this journey intending their LLCs to operate indefinitely, you also have the option to set a definite end date.
LLCs are "perpetual" by default in many states, implying they can exist as long as you wish. Most LLCs in Washington opt for a perpetual duration. Here's a sample provision:
The duration of the Company will be perpetual.
These are your funds, property, or services feeding the growth of your LLC. It's like the initial investment to get your business engine fired up. For sole-owner LLCs, your capital contributions come from you, giving you the liberty to decide how much to invest in your business.
Documenting your capital contributions is pivotal. It offers a transparent view of your company's financial makeup and can deliver vital information 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
Indemnification clauses in an LLC's Operating Agreement act as a financial buffer for the company's members against certain costs related to potential legal issues emanating from their duties to the company. It means the LLC will take care of any legal fees or damages if a member faces a lawsuit because of their responsibilities for the LLC.
It should clarify when and under which conditions the LLC offers this indemnification, and any exceptions. As a rule, indemnification does not cover intentional misconduct or serious negligence. Modifying these terms to your business's unique risks is key for thorough protection.
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 Washington LLC can be taxed in four ways: like a sole proprietorship, partnership, S corporation or a C corporation. The number of members and your chosen tax status with the IRS affect how your LLC is taxed.
Your agreement should elaborate on tax-related elements, including your chosen tax status, how to adjust it, and how to handle tax returns and allocations (when applicable). This provision gives your LLC the route to managing its finances, including profits, losses, dividends, and taxes. The goal is to detail a clear way to manage any tax-related challenges that your business may face.
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 dictates when your LLC will distribute income it generates. While it's not essential for single-member LLCs, it is important to outline the method, requirements, and time for profit distributions in multi-member LLCs.
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.
How do you alter a term in your LLC? A piece of cake! You follow the process specified in the LLC amendment clause. For single-member LLCs, this is simpler. For multi-member ones, it's key to deliberate and decide what's vital in terms of voting percentages to amend 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.
Here's a thing about LLCs -- they're usually not mandated to abide by corporate formalities, unlike corporations. However, neglecting these formalities can sometimes risk your corporate veil. So adding a complete waiver of all formalities in the operating agreement can be a smart idea.
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.
Every business needs a contingency plan. This includes a guide on how to end your LLC's existence if things don't quite turn out as you envisioned. You should also designate who will control the LLC should something happen to you.
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' is essentially the day your operating agreement springs into full action. It’s the day your agreement 'comes to life.'
No need for paperwork here! Unlike your Articles of Organization or Certificate of Formation (depending on your state), your operating agreement is an internal document. Just sign it and store a copy somewhere safe where you can find it quickly when necessary.
As small business owners, we all dream of a day when our business outgrows our individual capacity to manage it. If you find yourself ready to welcome another member to your LLC, you'll need to reshape the above paperwork to align with the agreement you have with your new partner. You'll most likely draft a brand new agreement, given a multi-member operating agreement is considerably different from a single-member one.
There you have it! Creating an LLC operating agreement may initially seem daunting, but it's all about breaking it down into manageable steps. Remember, this is your LLC's guidebook. It might take some investment of time now, but it's well worth it for smooth operations down the line. Happy entrepreneuring!
