Suppose you’re starting a business and forming a limited liability company (LLC) in Wyoming. 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, Wyoming 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 Wyoming Operating Agreement Include?
The Wyoming Operating Agreement details the inner workings of an LLC within the state. Being conversant with its chief components is essential for ensuring smooth operation and foreseeing potential issues.
- Each member’s rights and responsibilities: Define each member’s operational role, responsibilities, and decision-making authority within the Wyoming LLC. It should align with Wyoming’s regulations on members’ duties and rights.
- Capital contribution requirements for each member: Detail the amount and form of each member’s contribution, whether cash, property, or services, and note any obligations for future capital contributions.
- Procedures for adding and removing members: Describe the process for admitting or removing members, ensuring that it is in alignment with Wyoming’s membership guidelines.
- What happens when a member sells their interest, becomes disabled, or dies: Wyoming allows flexibility in this area, but it’s crucial to have clear procedures for these scenarios, such as buy-sell provisions or buyout rights for remaining members.
- Conditions under which a member might become bankrupt or insolvent: Address the impact on the LLC and the handling of the insolvent member’s interest.
Management and Voting:
- Management structure and roles of members: Wyoming allows both member-managed and manager-managed LLCs. Clearly indicate the structure chosen and describe roles accordingly.
- Voting rights of each member: Define voting privileges, which might be proportionate to capital contributions or another mutually agreed-upon system.
- Rules for meetings and voting: State the frequency, quorum requirements, and decision-making thresholds, keeping in mind any Wyoming-specific stipulations.
- Rules for managing potential conflicts of interest among members: Design guidelines to ensure transparency and fair dealings among members.
- Allocation of profits, losses, and distributions: Typically based on capital contributions but can be customized based on members’ mutual agreement.
- Provision for periodic financial audits or reviews: Determine the frequency and depth of financial reviews for maintaining trust and transparency.
- Tax treatment of the LLC: A Wyoming LLC typically enjoys pass-through taxation, but members can opt for other tax structures. Discuss with a tax expert.
Changes and Amendments:
- Process for amending the operating agreement: Define the procedures and voting thresholds needed to make changes to the agreement.
- Guidelines for company management during transition events: Describe the operational procedures during significant changes or transitions.
- Conditions under which the LLC might be sold or merged: Set out terms and conditions, including member approvals, for significant business decisions.
Disputes, Legalities, and Policies:
- Clauses for dispute resolution or mediation: Wyoming-based mediation or arbitration can be recommended, ensuring quick resolution and keeping matters within state boundaries.
- Guidelines for non-compete and confidentiality agreements: These should be crafted to be enforceable under Wyoming law, which tends to favor freedom of employment.
- Provision for indemnification and limitation of liability: Define protections for members or managers against certain liabilities, in line with Wyoming’s legal standards.
Record Keeping and Communication:
- Details about record keeping requirements: Adhere to Wyoming’s recommendations on maintaining key LLC documentation, ensuring members have appropriate access.
- Guidelines for how company-related decisions will be documented or communicated: Outline procedures for meeting minutes, notifications, and other key communications.
Company Information and Dissolution:
- Description of the business’s purpose and activities: Clearly state the main activities and purpose of the LLC.
- Identification of the registered agent and office: As mandated by Wyoming, specify the registered agent and primary business address for official communications.
- Procedures for dissolving the LLC: Wyoming has specific requirements for dissolving an LLC, like filing Articles of Dissolution. Ensure you follow these steps and address the settling of company liabilities.
- Procedures for winding down or liquidating the company’s assets: Describe the method for distributing assets after all debts and obligations have been settled.
How to Draft a Wyoming 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 member’s rights are protected. They can also include language that is specific to Wyoming 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 Wyoming 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 Wyoming, 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 Wyoming?
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 Wyoming LLC does not have an operating agreement?
Wyoming default rules for LLCs will apply, but in cases of dispute, the law may be vague, and your members could end up in court.