If you’re starting a business and forming a limited liability company (LLC) in Missouri, you must have an operating agreement. It is not filed with the state but must be kept 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
In addition to being a requirement under Missouri law, 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, Missouri laws will apply by default, and disputes may have to be settled in court, which can have serious negative consequences for the business. This is particularly true in Missouri since the law assumes that you’ll have the required operating agreement and thus may not contain provisions that govern situations that would usually be addressed in the operating agreement.
What Should the Missouri Operating Agreement Include?
The Missouri Operating Agreement configures the internal dynamics of an LLC in the state. Grasping its primary inclusions is key for effective management and anticipating potential challenges.
- Each member’s rights and responsibilities: Clearly detail the roles, obligations, and benefits for each member. Missouri law allows considerable freedom to customize this section.
- Capital contribution requirements for each member: Specify both the amount and type of initial contributions (e.g., cash, property, services). Address potential future contributions as well.
- Procedures for adding and removing members: In Missouri, unless otherwise specified, adding a new member usually requires unanimous consent.
- What happens when a member sells their interest, becomes disabled, or dies: Stipulate transferability rules. Missouri defaults to not allowing the transfer of management rights unless the operating agreement states otherwise.
- Conditions under which a member might become bankrupt or insolvent: Detail the implications and handling of a member’s insolvency or bankruptcy.
Management and Voting:
- Management structure and roles of members: Indicate whether the LLC will be member-managed or manager-managed. Missouri allows flexibility here.
- Voting rights of each member: If not specified, Missouri typically defaults to voting based on capital contributions.
- Rules for meetings and voting: Outline how often meetings will occur, the necessary notice for meetings, and the quorum requirements.
- Rules for managing potential conflicts of interest among members: Adopt policies to ensure ethical business conduct and handle potential conflicts.
- Allocation of profits, losses, and distributions: Unless otherwise stated in the operating agreement, Missouri defaults to allocations based on capital contributions.
- Provision for periodic financial audits or reviews: Decide whether there will be regular reviews and if they will be internal or involve external auditors.
- Tax treatment of the LLC: While the default for LLCs is pass-through taxation, stipulate if your Missouri LLC has chosen to be taxed differently.
Changes and Amendments:
- Process for amending the operating agreement: Clarify what vote (majority, supermajority, unanimous) is required for changes.
- Guidelines for company management during transition events: Describe continuity plans for significant business shifts, like leadership changes.
- Conditions under which the LLC might be sold or merged: Establish voting and procedural guidelines for major company decisions.
Disputes, Legalities, and Policies:
- Clauses for dispute resolution or mediation: Recommend Missouri-based mediation or arbitration to localize proceedings.
- Guidelines for non-compete and confidentiality agreements: Ensure non-competes are reasonable in terms of duration, geography, and scope to increase enforceability.
- Provision for indemnification and limitation of liability: Clearly detail scenarios where members or managers might be indemnified by the LLC.
Record Keeping and Communication:
- Details about record keeping requirements: Abide by Missouri mandates, including maintaining lists of members, capital contributions, and more.
- Guidelines for how company-related decisions will be documented or communicated: Foster an environment of transparency through robust communication protocols.
Company Information and Dissolution:
- Description of the business’s purpose and activities: While Missouri doesn’t require an explicit business purpose for the LLC, it’s often helpful to provide one.
- Identification of the registered agent and office: Ensure the registered agent is authorized to do business in Missouri.
- Procedures for dissolving the LLC: Conform with Missouri statutory requirements for dissolution, which include settling debts and distributing assets.
- Procedures for winding down or liquidating the company’s assets: Describe the pecking order in distributing assets after all obligations are settled.
How to Draft a Missouri 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 Missouri 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 Missouri 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 must have an operating agreement in Missouri, and the wise entrepreneur would only do business with one anyway. It’s a document that could be critical to your future. 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 Missouri?
No, operating agreements do not have to be notarized. They are not filed with the state, just kept in your records. In Missouri, however, you are required to have one.
What happens if a Missouri LLC does not have an operating agreement?
Missouri default rules for LLCs will apply, but in cases of dispute, the law may be vague, and your members could end up in court. This is particularly true in Missouri since an operating agreement is required.