Launching a new business can be an exciting — and profitable — endeavor. There are many factors to keep in mind as you get your company off the ground, though.
Creating an Operating Agreement for your business will make for an easier start as you build your brand. This legal document outlines everything that might affect your company, from deciding an ownership structure to determining how day-to-day operations will be handled.
This Operating Agreement is designed to protect all involved with the business and provides peace of mind to owners and investors.
Writing an extensive Connecticut LLC Operating Agreement will provide your business the support and protection it needs to grow. Keep reading to learn about the different elements of an Operating Agreement and how to write one.
What is a Connecticut LLC Operating Agreement?
If you’re forming a Connecticut limited liability company (LLC), you’ll want to draft an Operating Agreement to manage your business.
An LLC is a type of business structure owned by one or more people, who are called members. This structure creates a separate entity from its members, thus reducing their liability. It’s a way for you to protect your personal assets if your business faces any legal or financial issues.
Most states, including the state of Connecticut, don’t require LLCs to file an Operating Agreement during their formation. But it’s recommended that you establish an Operating Agreement if you want your business to be successful.
Your Connecticut LLC Operating Agreement is an important document. It outlines how financial and operational decisions will be made for your company. It lays out various rules and regulations for owners and employees to follow. Really, it sets you on a path toward success.
It’s important to note that if you don’t have an official Operating Agreement, the state’s default rules will govern your company.
Since you don’t need to file your Operating Agreement in Connecticut formally, there is no filing fee associated with this document. However, you’ll ideally want to have this agreement completed at the time you file your LLC’s Certificate of Organization with the state (often referred to as the Articles of Organization in other states) with the Connecticut Secretary of State, which costs $120.
Why do I need an LLC Operating Agreement in Connecticut?
Even though Connecticut doesn’t require LLCs to file an Operating Agreement, your business will still benefit from having one in several ways.
We already know that an Operating Agreement establishes how your business will be run. But it will also further protect your company’s limited liability status, according to the U.S. Small Business Administration (SBA).
And although Operating Agreements are not required in Connecticut, companies that don’t have one will be forced to default to generic state rules. Why give up that control and allow the state to interfere in your business if you don’t have to? An Operating Agreement allows you to establish your own rules.
Operating Agreements also help to ensure all LLC members are on the same page to avoid conflicts later. If you’re launching a company with individuals you trust, you might wonder why you need such a formal document. But business disputes are more common than you think, and it’s better to have decisions in writing rather than relying on verbal agreements.
Additionally, an Operating Agreement legitimizes your business, providing an air of professionalism to your endeavor. Some banks will also require a copy of your Operating Agreement when you’re opening a business bank account or applying for loans.
What do I include in my Connecticut LLC Operating Agreement?
Operating Agreements can vary quite a bit. The terms of each agreement will depend on your business, particularly its scope and needs and the interests of its members.
That said, there are some items that every Connecticut LLC Operating Agreement might want to consider including, according to the SB
- LLC Name
- Management Structure
- Duties of Those Involved
- Voting Powers and Policies
- Conducting Meetings
- Succession Protocol
- Buyout and Buy-Sell Rules
- Changes to the Operating Agreement
- Single-Member LLCs
- Severability Clause
1. LLC Name
Ensure the name of the company in your Operating Agreement is the same as it’s written on your Connecticut Certificate of Organization when you register your company with the state.
Spell your name the same way — don’t use any abbreviations or alternate spellings. And as an LLC, you need to remember to include your designator (Limited Liability Company, L.L.C., etc.) in your name.
List all owners of your LLC in this section. In addition to the names of the owners, you should also determine their ownership percentage and include this figure. Their ownership percentage is often determined by comparing the amount they invested in the LLC to the total amount of money invested by all members. The amount invested can also be referred to as their capital contributions.
In certain cases, you might determine ownership percentages in other ways, including how involved an individual is in managing the company.
In a single-member LLC, you are the sole owner.
3. Management Structure
In terms of management of the company, there are two types of management to consider for your LLC: member-managed and manager-managed.
If you don’t specify your management structure in Connecticut, you’ll default to a member-managed LLC. So, you need to determine which form of management works best for your business.
The key differences between the two management structures come down to the relationship between ownership and management. A member-managed LLC is led by its owners, while a manager-managed LLC creates a managerial role separate from ownership. This manager (or managers) has the authority to make day-to-day decisions regarding the business, and the owners aren’t typically involved in regular operations. The managers can be members of the LLC, someone(s) hired from outside the company, or both.
4. Powers and Duties of Members and Managers
In this section, you’ll delineate all of the expectations you have for your LLC’s members and managers.
All members, even those least involved in the company, will likely have certain duties. This might mean voting on various issues related to the LLC. Other members might have more substantial duties and powers related to operations.
5. Voting Rights and Responsibilities
One obligation that members usually have is voting. What decisions require a member to vote? Does a vote need a majority to win, or does it need to be unanimous? Is voting power distributed equally among members?
Often an LLC will divide voting power up according to ownership. So, a member who owns three-quarters of the LLC will have three votes compared to one vote of a member who owns one-quarter of the LLC. But this voting structure is not required. You and the other members get to decide how much each member’s vote weighs and put it in the Operating Agreement.
Your Operating Agreement determines how you distribute your profits among your members.
As an LLC, you have some flexibility with how you can distribute profits. You just need to be clear in advance about who receives what at the end of each year. The distribution of profits doesn’t necessarily need to be doled out based on ownership percentages.
You’ll also need to cover who is responsible for distributing the profits, by what method, and how often.
7. Guidelines for Scheduling and Holding Meetings
As an LLC, there are no legal requirements to schedule and host member meetings.
That said, it’s still helpful for your company to host meetings regularly. So, your Operating Agreement should determine when, where, and how they are organized.
By laying this out in advance, you can determine how frequently you meet and what will be discussed. It’s often advantageous for your members to meet regarding your LLC’s tax requirements.
8. Buyout and Buy-Sell Rules
Your Operating Agreement will lay out what happens when members leave or join the company.
You might choose to welcome new members, or others might choose to step away from the business.
How much must a new member invest to come on board? What happens to a member’s ownership percentage when they leave? These are questions that your Operating Agreement might answer.
Also, as members depart, your agreement can determine who has first dibs on their portion of the company. Can a departing member offer their percentage of the LLC to anyone? Must they first offer to sell to the remaining members?
9. Succession Planning
If an LLC member dies or retires, their ownership percentage must be transferred. The Operating Agreement needs to specify whether they are permitted to leave it to anyone they choose or whether their portion of the business needs to be transferred to existing members.
10. Dissolution of the LLC
It’s one thing for a member to choose to leave your company, but it’s another matter entirely when a group of members chooses to dissolve the LLC.
Your Operating Agreement must lay out the terms for dissolving the company. Is a majority or unanimous vote needed?
Your document should also determine what happens to any remaining assets when the LLC is dissolved. Often, there are a lot of loose ends when you shut down a company. You can’t just walk away from it without making sure everything is wrapped up. There could be legal ramifications if you don’t handle everything the right way.
When your members choose to dissolve the LLC in Connecticut, you must file a Certificate of Dissolution with the state. There is no fee to file this, but it does need to go on record. Until the state receives this form, your business will still be considered active, even if you aren’t operating. You might be responsible for business taxes, annual reports, and other fees.
11. Modifying Your Operating Agreement
Your members can modify any terms of your Connecticut LLC Operating Agreement at any point, but you need to determine how these modifications are made.
Your members will vote to add, remove, or tweak terms included in your Operating Agreement. How many member votes are required to make changes to the agreement? Do you need a unanimous vote to update your Operating Agreement? Or will a supermajority or just a majority get the changes made?
Whichever format you go with for modifying your Operating Agreement, just make sure it’s spelled out in the document. With changes you make that affect the information on file with the state on your Certificate of Formation (e.g., changing your business’s name), you might need to update your Certificate of Organization with an amendment.
12. Single-Member LLC Statute
A single-member LLC has just one person, and thus has 100% ownership of the business. It might seem like some of the points above (such as the details about voting in a multi-member LLC) are irrelevant in this case.
However, to help protect yourself legally, it’s wise to include a single-member LLC statute. This specifies that you are the exclusive owner and have full authority to make all of the LLC business decisions.
13. Severability Provision
A severability provision is a clause seen in nearly all types of contracts. It specifies that if one part of the contract is invalid, it doesn’t invalidate the entire agreement. The Operating Agreement thus won’t be meaningless because of a single mistake.
Get Help Writing Your LLC Operating Agreement
Writing an Operating Agreement covering all your LLC’s bases requires the business and legal know-how to do so. A lot of time and attention to detail is also needed to create such a comprehensive document.
If the task seems overwhelming to you, consider hiring a business attorney or another professional to help you create this important document that determines how your company operates. You also want to ensure that the terms you include in your Operating Agreement don’t violate Connecticut’s Uniform Limited Liability Company Act or other state laws.
ZenBusiness is an excellent resource for creating your Connecticut LLC Operating Agreement. Our customizable template is a handy tool while you craft your company’s Operating Agreement.
Updating and Revising Your Connecticut LLC Operating Agreement
The beauty of an LLC is how flexible this form of business is. In fact, this flexibility is often why members choose this over a corporate structure or another type of business. Your Operating Agreement is a fluid document. Just because you laid out the terms of operations at the launch of your company doesn’t mean your business needs will always be the same.
As your company matures, you’ll want to update your Operating Agreement and make changes to your LLC’s operating structure to accommodate this growth. The flexibility of running an LLC allows its members to make changes to the Operating Agreement whenever any major changes take place with the company.
There are many reasons you might change your Operating Agreement. Perhaps you want to switch from a member-managed to manager-managed business. Maybe you want to change the allocation of distributions. Or as state laws evolve, you may need to bring your company into compliance.
Consider voting on Operating Agreement updates during an annual meeting. If something pressing arises, though, you might want to consider calling a special meeting to address emergency matters.
Making these changes is a fairly simple process:
- First, your members need to vote on the matter at hand. Follow the terms laid out in your Operating Agreement regarding modifications to the document.
- Once a decision has been made by vote, put the changes in writing as an addendum to your Operating Agreement.
- Finally, have all members sign the new version of the agreement and file this document internally.
Remember, you don’t need to file your Operating Agreement with the state. However, if you’ve made any changes that affect your Certificate of Organization, such as your company’s name or adding or removing members, you’ll need to update this information with the state, as well.
More Connecticut LLC Operating Agreement FAQs
- Is an LLC Operating Agreement required in Connecticut?
LLCs aren’t legally required to file an Operating Agreement in Connecticut. Companies are advised to create an Operating Agreement, though. It establishes ownership in your company and outlines how the business will run.
- Where do I get an LLC Operating Agreement in Connecticut?
There is no set Operating Agreement document in Connecticut. Each business creates its own Operating Agreement based on its unique needs. ZenBusiness offers a helpful template that you can use while drafting your Operating Agreement.
Because each business is unique, though, you might want to consider consulting with an attorney to help you determine Operating Agreement terms specific to your business.
- Does a single-member LLC need an Operating Agreement in Connecticut?
Operating Agreements are not required for any LLC — whether single-member or multi-member — in Connecticut.
Still, even single-member LLCs are advised to adopt an Operating Agreement. There is more to an Operating Agreement than providing clarification on various issues if there are disputes among members.
- Do I file an LLC Operating Agreement with Connecticut?
Connecticut does not require LLCs to file an Operating Agreement with the Secretary of State. Still, adopting an Operating Agreement is advisable for all LLCs.
A copy of your Operating Agreement, signed by all members, should be filed at your LLC’s primary place of business. And if you update your Operating Agreement in any way after your company is established, any changes that affect your Certificate of Organization will also need to be updated with the state.
- Can I write my own LLC Operating Agreement in Connecticut?
Yes, you can legally write your own Operating Agreement. It is not required that you hire an attorney to draft your LLC’s Operating Agreement. ZenBusiness provides a template for your reference while writing your company’s Operating Agreement.
Once approved by members and signed, this is a legal document, though. So, ahead of any member approval, you should have a legal professional review your Operating Agreement to ensure it doesn’t violate any state or federal laws.
- Do I need a lawyer for an LLC Operating Agreement in Connecticut?
No, you are not required to hire an attorney to create your LLC’s Operating Agreement in Connecticut. You are permitted to write your own Operating Agreement.
It is advisable, though, that you have an attorney familiar with state laws review your document. They can also suggest specific terms that will help you do business in Connecticut.
Operating Agreement templates are excellent resources while writing your own document. But these templates might not include everything your particular company needs in its Operating Agreement.