Suppose you’re starting a business and forming a limited liability company (LLC) in Louisiana. In that case, you’re not required to have an operating agreement, but it’s a good idea to have one in your records.
An operating agreement is significant if your LLC has more than one owner, or member, as it establishes ownership shares, profit and loss distributions, and member roles and responsibilities.
Why You Need an Operating Agreement
A smartly drafted operating agreement can help you in many situations, such as when your LLC merges with another business or a member is no longer capable of working.
The operating agreement establishes each member’s ownership share in the LLC, profit and loss distribution percentages, and how proceeds will be divided if the business is sold. An operating agreement also defines how decisions and member disputes will be resolved.
It also defines each member’s role and responsibilities and how the LLC is managed, clarifying who oversees which aspects of LLC operations.
Without an operating agreement, Louisiana laws will apply by default, and disputes may have to be settled in court, which can have serious negative consequences for the business.
What Should the Louisiana Operating Agreement Include?
In the heart of the bayou, Louisiana LLCs require a tailored approach to their foundational documents. Here’s an in-depth look at the key elements that a Louisiana Operating Agreement should encompass.
- Each member’s rights and responsibilities: The operating agreement for a Louisiana LLC should detail the entitlements, duties, and powers of each member, establishing clarity and transparency in their roles.
- Capital contribution requirements for each member: Specify the type and amount of capital contribution for each member, whether in terms of money, assets, or services, which often influences ownership percentages and profit distribution.
- Procedures for adding and removing members: Set forth clear guidelines on how to incorporate new members into the LLC and the conditions or processes for exiting or expelling members.
- What happens when a member sells their interest, becomes disabled, or dies: Detail the effects on the LLC and transfer procedures in case of these events, in line with Louisiana’s laws.
- Conditions under which a member might become bankrupt or insolvent: Specify the implications and operational processes for the LLC and the member in such scenarios.
Management and Voting:
- Management structure and roles of members: Decide whether the LLC is member-managed or manager-managed and define responsibilities and duties based on the chosen structure.
- Voting rights of each member: Establish each member’s voting power, which might be proportional to their ownership or another predefined metric.
- Rules for meetings and voting: Lay out the protocol for conducting meetings, defining quorums, and procedures for decision-making.
- Rules for managing potential conflicts of interest among members: Implement measures to disclose and manage any conflicts of interest to ensure ethical business practices.
- Allocation of profits, losses, and distributions: Clearly define how financial outcomes are divided among members—this might be based on capital contributions or another decided metric.
- Provision for periodic financial audits or reviews: Even if not mandatory, conducting regular financial reviews can boost financial transparency and trust.
- Tax treatment of the LLC: Typically, Louisiana LLCs have pass-through taxation, but if the members opt for a different tax classification, it should be documented.
Changes and Amendments:
- Process for amending the operating agreement: Define the steps and any special requirements, like supermajority votes, for amending the agreement.
- Guidelines for company management during transition events: Provide guidelines on navigating the LLC through significant events or structural changes.
- Conditions under which the LLC might be sold or merged: Elaborate on the conditions and processes for significant business events, such as acquisitions or mergers.
Disputes, Legalities, and Policies:
- Clauses for dispute resolution or mediation: Consider incorporating alternative dispute resolution methods like arbitration or mediation before heading to litigation, fostering a harmonious environment.
- Guidelines for non-compete and confidentiality agreements: Set parameters for members’ activities outside the LLC and how confidential business information is handled and protected.
- Provision for indemnification and limitation of liability: Outline how members are safeguarded from certain liabilities associated with their roles in the LLC.
Record Keeping and Communication:
- Details about record keeping requirements: While Louisiana has its statutory requirements, the operating agreement might specify more detailed record-keeping practices.
- Guidelines for how company-related decisions will be documented or communicated: Provide a framework to ensure consistent communication and documentation among members.
Company Information and Dissolution:
- Description of the business’s purpose and activities: Detail the main objectives and functions of the LLC, ensuring everyone is aligned with the company’s mission.
- Identification of the registered agent and office: Every Louisiana LLC is mandated to have a registered agent within the state. This should be documented in the agreement.
- Procedures for dissolving the LLC: Set out the steps and requirements for winding up the LLC in compliance with Louisiana statutes.
- Procedures for winding down or liquidating the company’s assets: Describe the processes for liquidating assets and handling outstanding debts or obligations upon dissolution.
How to Draft a Louisiana Operating Agreement
You can find operating agreement templates online from services like ZenBusiness, which will ensure the standard legal language and allow you to fill in the blanks. You’ll probably be able to find free templates online as well, but it’s advisable not to use those as they may include errors.
Consider having an attorney draw up your operating agreement if your business has multiple members. An attorney will ensure that all bases are covered, and all members’ rights are protected. They can also include language that is specific to Louisiana laws.
This could cost anywhere from $500 to $2,500, but it could save you much more.
Articles of Organization vs. Operating Agreement
The operating agreement should not be confused with your LLC’s articles of organization. The articles of organization officially form your LLC with the state and include no information about member roles or financial interests.
Also, the articles of organization are filed with the state and part of the public record, while an operating agreement is kept in your LLC’s records and referred to as needed.
Keep Your Louisiana Operating Agreement Up to Date
It’s a good idea to review your operating agreement periodically. Circumstances change, and the safest approach is to ensure your operating agreement is entirely up to date. Generally, your operating agreement will state that members have to vote to approve amendments to the operating agreement.
Don’t Skip the Operating Agreement
You’re not required to have an operating agreement in Louisiana, but the wise entrepreneur would never do business without one. It’s a document that could be critical to the future of your business. You may think a dispute will never arise, but times and people change.
You don’t want to end up in a bitter court battle because you pushed off creating an operating agreement. It’s a document that will protect the rights and interests of your LLC members and ensure smooth, continued operations in the event of any unexpected hurdles or pitfalls.
Does an LLC operating agreement need to be notarized in Louisiana?
No, operating agreements do not have to be notarized. They are not filed with the state, just kept in your records.
What happens if a Louisiana LLC does not have an operating agreement?
Louisiana default rules for LLCs will apply, but in cases of dispute, the law may be vague, and your members could end up in court.