Suppose you’re starting a business and forming a limited liability company (LLC) in Oklahoma. 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, Oklahoma 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 Oklahoma Operating Agreement Include?
The Oklahoma Operating Agreement delineates the guidelines for the internal operations of an LLC situated in the Sooner State. For optimal business management and to forestall potential disagreements, it’s vital to be acquainted with its core elements.
- Each member’s rights and responsibilities: In Oklahoma, you can define specific roles, duties, and expectations for each member within the LLC, ensuring all understand their position in the company.
- Capital contribution requirements for each member: Clearly state the amount and nature of contributions (cash, property, services, etc.) each member needs to provide, establishing a base for profit sharing and influence in the company.
- Procedures for adding and removing members: Determine the procedure, whether by unanimous consent, majority vote, or another agreed-upon mechanism.
- What happens when a member sells their interest, becomes disabled, or dies: Address mechanisms such as buy-out clauses, insurance considerations, and succession plans.
- Conditions under which a member might become bankrupt or insolvent: Discuss how the LLC will handle such scenarios, like automatic dissociation or buyout provisions.
Management and Voting:
- Management structure and roles of members: Oklahoma permits member-managed or manager-managed LLCs. Choose the structure that fits best and describe management roles accordingly.
- Voting rights of each member: Typically, these are proportional to capital contributions but can be adjusted as the members see fit.
- Rules for meetings and voting: Define the quorum requirements, how often meetings will occur, and the process for decision-making.
- Rules for managing potential conflicts of interest among members: Set standards for transparency and procedures for situations where personal and company interests might conflict.
- Allocation of profits, losses, and distributions: Clarify how these will be divided among members. It’s often proportional to capital contributions unless stated otherwise.
- Provision for periodic financial audits or reviews: Decide on the frequency and who will conduct them.
- Tax treatment of the LLC: By default, LLCs have a pass-through tax structure, but you can opt for different tax treatments. Ensure compliance with both state and federal tax regulations.
Changes and Amendments:
- Process for amending the operating agreement: Define the mechanism, such as requiring a supermajority or unanimous decision.
- Guidelines for company management during transition events: Provide a roadmap for how the company will navigate major changes or disruptions.
- Conditions under which the LLC might be sold or merged: Specify the process and required approvals.
Disputes, Legalities, and Policies:
- Clauses for dispute resolution or mediation: Implementing such mechanisms can often result in quicker and less costly resolutions compared to litigation.
- Guidelines for non-compete and confidentiality agreements: Define the scope, duration, and conditions, ensuring they’re enforceable under Oklahoma law.
- Provision for indemnification and limitation of liability: Detail protection clauses for members against certain liabilities stemming from their role in the LLC.
Record Keeping and Communication:
- Details about record keeping requirements: Outline what records must be maintained and how they will be accessed by members.
- Guidelines for how company-related decisions will be documented or communicated: Decide on the process for communicating key decisions, whether through official minutes, emails, or other means.
Company Information and Dissolution:
- Description of the business’s purpose and activities: While Oklahoma doesn’t require a highly specific business purpose, having one aids in clarity.
- Identification of the registered agent and office: An Oklahoma LLC needs a registered agent within the state to receive official communications.
- Procedures for dissolving the LLC: Document the process for closure, ensuring alignment with Oklahoma’s dissolution requirements.
- Procedures for winding down or liquidating the company’s assets: Establish steps for settling the LLC’s debts and distributing any remaining assets to members.
How to Draft an Oklahoma 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 Oklahoma 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 Oklahoma 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 Oklahoma, 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 Oklahoma?
No, operating agreements do not have to be notarized. They are not filed with the state, just kept in your records.
What happens if an Oklahoma LLC does not have an operating agreement?
Oklahoma default rules for LLCs will apply, but in cases of dispute, the law may be vague, and your members could end up in court.