Suppose you’re starting a business and forming a limited liability company (LLC) in Nebraska. 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, Nebraska 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 Nebraska Operating Agreement Include?
When setting up an LLC in Nebraska, it’s crucial to be well-informed. Let’s delve into the essential components of a Nebraska Operating Agreement.
- Each member’s rights and responsibilities: Specify the authority, obligations, and duties of each member. Nebraska law allows members to define these roles, but they should be clear to prevent future conflicts.
- Capital contribution requirements for each member: Clearly indicate the amount or item of value each member contributes, which typically dictates their ownership percentage.
- Procedures for adding and removing members: Nebraska law allows flexibility, so stipulate clear criteria and processes for membership changes.
- What happens when a member sells their interest, becomes disabled, or dies: Specify buy-sell agreements, rights of first refusal, or any other relevant procedures to handle such scenarios.
- Conditions under which a member might become bankrupt or insolvent: Detail the ramifications and procedures in case a member faces financial distress.
Management and Voting:
- Management structure and roles of members: Nebraska allows either member-managed or manager-managed LLCs. Designate which model you’re using and the roles/responsibilities accordingly.
- Voting rights of each member: Voting can be proportionate to ownership or another agreed-upon method. Make sure it’s defined.
- Rules for meetings and voting: Describe how often meetings occur, what constitutes a quorum, and the procedure for casting votes.
- Rules for managing potential conflicts of interest among members: Establish guidelines to handle situations where members’ personal interests might conflict with those of the LLC.
- Allocation of profits, losses, and distributions: Define how the LLC distributes profits and absorbs losses, typically based on capital contributions.
- Provision for periodic financial audits or reviews: Specify if and when the LLC undergoes financial scrutiny to maintain transparency.
- Tax treatment of the LLC: By default, Nebraska treats LLCs as pass-through entities. If seeking another classification, like an S-Corp, state it clearly.
Changes and Amendments:
- Process for amending the operating agreement: Set forth how changes to the agreement can be proposed, discussed, and implemented.
- Guidelines for company management during transition events: Offer direction on how to navigate significant business changes or shifts.
- Conditions under which the LLC might be sold or merged: Establish processes and criteria for major structural or ownership changes.
Disputes, Legalities, and Policies:
- Clauses for dispute resolution or mediation: Encourage less adversarial solutions, like mediation, before litigation.
- Guidelines for non-compete and confidentiality agreements: These clauses protect the LLC’s interests and proprietary information.
- Provision for indemnification and limitation of liability: Detail protections for members or managers acting on behalf of the LLC, as allowed by Nebraska law.
Record Keeping and Communication:
- Details about record keeping requirements: While Nebraska has basic requirements, your LLC might opt for more comprehensive documentation.
- Guidelines for how company-related decisions will be documented or communicated: Ensuring consistent communication maintains trust and clarity.
Company Information and Dissolution:
- Description of the business’s purpose and activities: Clarify the LLC’s primary objectives and functions.
- Identification of the registered agent and office: A requirement in Nebraska, this designates who and where official communications will be sent.
- Procedures for dissolving the LLC: Describe steps to take if the LLC must end its operations, in accordance with Nebraska law.
- Procedures for winding down or liquidating the company’s assets: If dissolution occurs, indicate how assets are managed and debts are settled.
How to Draft a Nebraska 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 Nebraska laws.
This could cost anywhere from $500 to $2,500, but it could save you much more.
Certificate of Organization vs. Operating Agreement
The operating agreement should not be confused with your LLC’s certificate of organization. The certificate of organization officially forms your LLC with the state and includes no information about member roles or financial interests.
Also, the certificate of organization is filed with the state and is part of the public record, while an operating agreement is kept in your LLC’s records and referred to as needed.
Keep Your Nebraska 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 Nebraska, but the wise entrepreneur would never do business without one. It’s a document that could be critical to your future. You may think a dispute will never arise, but times 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 Nebraska?
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 Nebraska LLC does not have an operating agreement?
Nebraska default rules for LLCs will apply, but in cases of dispute, the law may be vague, and your members could end up in court.