In this guide, we’ll take you through what an Operating Agreement does, why it’s an important internal document, how to create one, and answer commonly asked questions. We’ll make it easy to create an Operating Agreement for your Indiana LLC to ensure your company is fully protected.
What is an Indiana LLC Operating Agreement?
An Operating Agreement is an important document that all Indiana LLCs should create in regards to the affairs of the company. A good rule of thumb is to create an Operating Agreement during the early phases of the LLC formation process. For instance, think about creating your Operating Agreement when you’re filing your Articles of Organization with the Indiana Secretary of State. While many LLCs believe a verbal agreement can suffice, a written agreement is a more reliable way to ensure your company is protected.
Your Operating Agreement will include essential information on how your Indiana LLC will be run and can help protect your personal finances from company liabilities. This agreement will also dictate in detail how your LLC will be managed (if you have multiple members) and how each member will contribute to the company.
If you have an LLC with multiple members, all members should read, agree with, and sign your company’s Operating Agreement.
Why do I need an LLC Operating Agreement in Indiana?
Although Indiana does not require you to create and file an Operating Agreement, doing so can protect and benefit your business. Here are a few key reasons to draft an Operating Agreement for your Indiana LLC.
- Further protect your company’s LLC status: LLCs offer personal limited liability protections for owners (called “members” in an LLC). While Operating Agreements are not required, they can give an added layer of protection from personal liability. In the event of a lawsuit, having the agreement in place helps demonstrate to the courts that you’re serious about your LLC being its own separate legal entity.
- Resolve member disputes: When you co-own a business, disagreements are bound to pop up. If you create an Operating Agreement for your Indiana LLC, you’ll be able to set rules and regulations regarding members’ financial rights, voting processes, and adding and removing members. This framework can help to resolve disputes among members quickly.
- Ensure your business is run properly: If you are incapacitated or unable to run your LLC, your Operating Agreement will allow the state to ensure your business is run properly. Otherwise, your LLC will operate according to Indiana state laws, which may not be suitable for your business.
- Protect your operational flexibility: Having an Operating Agreement for your Indiana LLC lets you take advantage of the flexibility of the LLC business structure. It helps you run your company as you see fit, rather than adhering to more stringent business laws for corporations or other company entities.
- Help open financial accounts: Although Operating Agreements are not required by Indiana law, banks, lenders, and other financial institutions may want to see a copy of your Operating Agreement before they’ll open a business bank account on behalf of your Indiana LLC or give your LLC a loan.
Lastly, having an Operating Agreement can further legitimize your LLC business entity. It shows potential members and investors that you are an official company with the operational procedures in place to grow and adapt as needed.
What do I include in my Indiana LLC Operating Agreement?
The exact length of your Operating Agreement will vary depending on the number of members you have and the rules you want to include. When creating your Indiana Operating Agreement, there are certain inclusions you’ll want to ensure are covered.
Here are some items you may want to include in your Indiana Operating Agreement:
- LLC Name
- Ownership Details
- Member Rights and Responsibilities
- Member Voting Structure
- Profit Distributions
- Membership Change Process
- Holding Meetings
- Record Management
- Human Resources Policies
- Operational Rules
- Single-Member LLC Designation
- Severability Provision
1. LLC Name
Your official business name (with proper LLC designator) should be included in your Operating Agreement and match the name of the company you put when you filed your Indiana Articles of Organization. Many LLCs opt to include a short section with the LLC’s official name and any assumed or trade names associated with the company. This can be helpful when opening business financial accounts.
2. Ownership Details
If your LLC has multiple members, your Operating Agreement should include what percentage of the company is owned by each member. Even if you’re a sole-member LLC, you should clarify your company’s ownership information.
You can record each member’s initial capital contributions to the LLC here. Some LLCs set ownership percentages based on a member’s capital contribution, but you can divide the LLC’s ownership however you like, as long as all members are in agreement.
This is also an opportunity to determine your LLC’s management structure. LLCs may be managed by their members (these are referred to as member-managed LLCs) or by one or more managers with or without any stake in ownership (manager-managed LLCs).
3. Member Rights and Responsibilities
This next section should discuss each member’s role and contributions to the company. This can help alleviate arguments in the future
This section should also detail the names of all original members, their initial contributions, and their profit percentages. From here, you’ll want to cover how business decisions are made. For example, do they require a member vote, or can managers make some decisions?
Some Operating Agreements also include noncompete clauses to ensure the company is protected if a member leaves or decides to start another business.
Lastly, you might want to include whether members have the authority to speak on behalf of the LLC and make decisions without complete member approval.
4. Member Voting Structure
Even if all members in your LLC receive a full vote, it’s important to note the weight of each vote and decide how ties can be broken. Do members who own a larger percentage of the company get more votes? You might also consider setting rules around member meetings and whether votes can be held if all members are not in attendance.
5. Profit Distributions
This section will contain details regarding how profits are handled among members in your LLC. You’ll want to ensure this section is as detailed as possible to eliminate any potential confusion or conflicts. The distributions might be based on each member’s percentage of ownership in the LLC or split among members evenly. Whatever the split, make sure the amount is indicated in this agreement.
You’ll also want to include the timing of these distributions and any rules surrounding when members should not receive distributions (e.g., during financial hardships).
It can be helpful to run this section by a trustworthy business accountant or attorney.
6. Membership Change Process
This section will describe how members leave and join your Indiana LLC and should take into account the financial ramifications of both.
You’ll first want to determine how a new member can be brought into your Indiana LLC. What’s the process for doing this, and will a vote be held? If so, how many members must vote in favor of adding a new member? Clearly indicate this process and outline any rules regarding new member financial contributions and profit earnings.
It’s also important to determine how to handle a member leaving the company. This can happen if a member decides to pursue other interests or if they become incapacitated in any way. Outline the process for leaving and indicate any financial responsibilities and buyout processes.
This is also a good place to outline the process for dissolving your Indiana LLC. Determine if a vote is needed, how many members must vote in favor of dissolution, and indicate how finances will be handled.
7. Holding Meetings
Next, you’ll detail the structure and cadence for member meetings. You might even want to include whether meetings must be attended in person or virtually. LLCs do not need to hold member meetings by Indiana law, but these meetings are important to ensure your company runs smoothly.
You can specify exact dates or times for these meetings to be held or constitute a general meeting cadence.
8. Record Management
Although Indiana LLCs do not need to keep records and meeting notes to remain compliant with the state, they can be important for ensuring your LLC runs properly. Record-keeping will ensure your company has files of important decisions and amendments made to your Operating Agreement and other business documents, which could prove helpful if you run into tax or legal trouble.
Detail the process for record management, which meetings require these official notes, and where records will be stored.
9. Human Resources Policies
If your LLC has multiple employees, it may make sense to include human resources topics and policies in your Operating Agreement. This could include general rules of conduct, pay policies, vacation and paid time off (PTO) accrual, and other HR-related information. This can be as detailed or concise as you choose.
10. Operational Rules
Be sure to dictate any specific operational rules regarding how your LLC will be run (e.g., will the members or a manager run the business?). You might also have specific company rules and guidelines listed here.
11. Single-Member LLC Designation
While most of the above make sense if you’re establishing an LLC with multiple members, what do you do if you’re creating a single-member LLC in Indiana? You don’t need to include rules about member responsibilities or voting structures since you’ll be the one making all of the company’s decisions.
Instead, you’ll want to note that your Indiana LLC operates as a single-member LLC to prevent being confused with a sole proprietorship. You’ll use this section to designate that you’re the owner with 100% of the financial benefit, responsibilities, and decision-making power. You’ll also want to clarify that no meetings or votes need to be held as the sole owner.
It may seem redundant to include this information in your Operating Agreement, but it can be very important if you ever need to demonstrate your LLC status and show the state that you are the sole LLC owner.
12. Severability Provision
Lastly, you’ll want to include a severability provision in your Operating Agreement. This boilerplate legal clause will be provided to you if you sign up to receive a professional Operating Agreement template from a business formation service like ZenBusiness.
This clause ensures that even if one part of the Operating Agreement is invalidated, it does not invalidate the entire agreement.
Partner With ZenBusiness for Professional Assistance
Creating an Operating Agreement for your Indiana LLC can feel overwhelming. It can be difficult to be sure you’ve covered all of the necessary topics and hard to determine if your agreement’s boilerplate language is consistent with other LLCs.
If you’ve never created an Operating Agreement, ZenBusiness can help. We have a customizable template to help ensure your Indiana LLC’s Operating Agreement contains all of the required information needed to protect your business.
Updating and Revising Your Indiana LLC Operating Agreement
Over time, your LLC may grow or change with market trends. As a result, you might find your Operating Agreement no longer represents your business’s best interests. To ensure your Operating Agreement always remains as current as possible, we recommend revisiting your agreement when you’re filing your annual report, where you’ll also be updating your other important information if necessary
Reviewing your agreement at least once a year and ensuring all policies still best reflect your company’s interests can make revising your Operating Agreement fairly easy. To make changes to your Operating Agreement, you’ll create amendments. You can even amend the entire document if preferred, although it’s unnecessary as long as any changes are well-documented.
Typical changes could include:
- Adding members
- Updating financial distributions
- Changing operational structures (e.g., from member-managed to manager-managed)
When revising your Operating Agreement, it’s important to ensure you hold a member vote for each change. No amendments should be made without proper approval.
Some changes may also need to be reflected in your Indiana Articles of Organization by filing an Articles of Amendment, which carries a $30 filing fee.
Indiana Operating Agreement FAQs
- Is an LLC Operating Agreement required in Indiana?
No, Indiana does not require LLCs to create an Operating Agreement as a legal document to operate. However, the state does recommend having an Operating Agreement on file in case of disputes or issues. In addition, some financial institutions might require Operating Agreements to open business accounts.
- Where do I get an LLC Operating Agreement in Indiana?
Indiana does not have an official state Operating Agreement form or template for LLCs. However, you can find an Operating Agreement template for your Indiana LLC through ZenBusiness. This template provides the core structure of your LLC’s Operating Agreement while allowing you to tailor your document to fit your LLC’s needs best.
- Does a single-member LLC need an Operating Agreement in Indiana?
No LLC in Indiana is required to file an Operating Agreement. However, single-member LLCs are encouraged to have an Operating Agreement just like multi-member LLCs. This document will offer clear direction on how the LLC should operate. Single-member LLC owners can also further protect themselves from personal liability disputes by having an LLC Operating Agreement on file at their company.
- Do I file an LLC Operating Agreement with Indiana?
You do not file your Operating Agreement with the Indiana government, but you should keep it on file at your company. Every member should retain a copy, and you can also have your business attorney keep a copy on file.
- Can I write my own LLC Operating Agreement in Indiana?
You can create your own Operating Agreement for your Indiana LLC. However, Operating Agreements can be very complex and difficult to create on your own. If you do not have experience with these documents, we recommend seeking professional help. At ZenBusiness, we offer a template to help you write an agreement that protects your business.
- Do I need a lawyer for an LLC Operating Agreement in Indiana?
You do not need to work with a lawyer to create an Operating Agreement in Indiana, especially if you’re working off a professional template. However, it can be a good idea to run your agreement draft by a qualified business attorney to get their legal advice and ensure all of the proper clauses are included. Your lawyer can also keep a record of your Operating Agreement on file for you.