Louisiana state law defines an Operating Agreement for an LLC as: “Any written agreement between the member and the company memorializing the affairs of a limited liability company and the conduct of its business.” A Louisiana Operating Agreement is a protective measure that you can take to safeguard your company’s assets, liabilities, goals, and growth. This document includes highly specific details about how your LLC will run and all expectations for leadership within the company.
You can think of your Louisiana LLC Operating Agreement as the skeletal framework of the rules and ideas on which your business is formed.
Even if you are founding a single-member LLC, you need an Operating Agreement to further emphasize the separations between yourself as an individual and the company as an entity.
This helpful guide will offer a few tips on what should be included in your Louisiana LLC Operating Agreement.
What is a Louisiana LLC Operating Agreement?
Starting a business in the state of Louisiana can be accomplished by a number of filing methods. You can register with the geauxBIZ platform, hosted by the Louisiana Secretary of State to complete your startup filings online, register your business by mail, fax, or with a scheduled in-person appointment. A fair amount of paperwork or completion of digital forms is involved in any method you choose.
One of the major functions of an Operating Agreement is to explain and solidify the percentages of ownership within your business. This document will list all business owners (called “members” in an LLC) within your company and how much of the business they own.
Beyond this integral service, your Louisiana LLC Operating Agreement should go into detail about the affairs of the company and the manner in which your company will be governed on a day-to-day basis. If there are specific rules for voting procedures, the induction of new members, the handling of mergers, or the approach to future partnerships that you want to be established, this is the document in which to do that. Also, make sure to include an outline for expectations if the LLC should dissolve.
Why do I need an LLC Operating Agreement in Louisiana?
If you are contemplating why a Louisiana LLC Operating Agreement is even necessary when the Secretary of State’s office does not make it a mandatory part of new business filings, there are several key points to understand. Although it does not appear in the official forms and fees needed to get your business off the ground, there is a strong argument to be made that this is one of your company’s most crucial documents.
Refer to the details provided by the U.S. Small Business Administration (SBA) on this matter. The SBA lists the Operating Agreement as a “key document” in the creation of an LLC.
Your Louisiana Operating Agreement is going to work on behalf of your business in two highly influential ways. The first way will be as a guide for the interior management of your company. Once signed by all members, the second way your Operating Agreement works for your business is as a formal contract, proving all interested parties have agreed to and will abide by the information therein.
The Operating Agreement serves to shield your business from mismanagement or leadership choices that do not align with your company’s core principles. On an ideological level, you can think of your Louisiana LLC Operating Agreement as a bill of rights of your company. It provides sovereignty and clarity on the way that you intend for your business to run.
The following list provides a few more practical benefits associated with your Louisiana Operating Agreement:
- Business credibility: The way that your company is perceived by the rest of the business world will dictate a great deal of its success. Most other reputable business entities or individuals you decide to partner with will likely ask to review your Operating Agreement. Banks, investors, and other financial institutions will generally ask to see a copy of your Operating Agreement before allowing your business to borrow money or open bank accounts.
- Additional protection from personal liability: One of the major advantages that attract entrepreneurs to the LLC business structure is the legal separation between the individual and the company. Your Louisiana LLC Operating Agreement refines that separation to a more specific point. You will enjoy further distinguishment from your company when you implement an Operating Agreement. Should any legal woes befall your company, your personal assets and finances will be safer.
- Maximize LLC flexibility: Another major appeal of the LLC business structure is that its built-in flexibility can be enhanced by a strong Operating Agreement. LLCs are already not subject to the same regulations and reporting requirements that corporations face. When you draft a Louisiana LLC Operating Agreement, you are essentially customizing the methods for running your business. Your Operating Agreement is where you can dictate rules for buyout opportunities, administrative responsibilities, managerial structures, and fiscal obligations. The more specific you are, the better.
- Bind verbal agreements: The trouble with proving oral agreements is that it generally comes down to one person’s word against another’s, and this is unhelpful in a court of law. Having a written Louisiana LLC Operating Agreement will prevent such a stressful and unpredictable scenario. This is why it’s so important that you include the most detail that you can possibly manage in your Operating Agreement. Once your members sign, every detail of that agreement is enforceable by law.
- Sanctity recognized by state law: Sometimes, the best way to evaluate the worth of something is to look at what happens if you take it away. In the case of a Louisiana Operating Agreement, what happens if you do not have one is that default state laws fill in the gaps for you. While this may not seem like such a bad thing at first glance, it can cause genuine problems for business owners who have a clear vision of how they want their companies handled. For example, without a Louisiana LLC Operating Agreement, if three out of the four owners of a company want to sell, and you are the fourth owner who does not, the majority of your business could be sold without your consent. An Operating Agreement can leave you more control.
What do I include in my Louisiana LLC Operating Agreement?
Among the most valuable features of your Louisiana LLC Operating Agreement will be its difference from any other Operating Agreement in the state. While certain key features of company culture and management should be included in any well-written Operating Agreement, yours won’t necessarily bear a resemblance to anyone else’s.
The following items represent basic guidelines offered by the SBA pertaining to what should appear in any thorough Louisiana Operating Agreement:
- LLC Name
- Management structure
- Duties of members and managers
- Voting rights and responsibilities
- Holding meetings
- Buyout and buy-sell rules
- Succession planning
- Modifications to the operating agreement
- Single-member LLC statute
- Severability provision
1. LLC Name
Writing the correct name of the company in your Louisiana LLC Operating Agreement may not seem like a step that would require much thought. However, many founders do not realize that the business name needs to appear as it did on your Articles of Organization. Review Louisiana’s naming guidelines and make sure not to accidentally write any “doing business as” (DBA) names you may have selected.
All persons having an ownership stake in your LLC must have their full names appear in the contents of your Louisiana Operating Agreement. There should be a specific section of the document set aside for this purpose.
Often, the distribution of capital contributions (money needed to start a business) dictates ownership percentages. It’s common for an owner’s percentage to reflect the amount of capital they have directly contributed to the company. However, that needn’t be the case. You can divide the ownership equally among members or use some other metric to determine ownership percentages.
As you draft your Louisiana Operating Agreement, don’t forget to include specifics about distributions. Distributions refer to the way that profits will be divided among your company’s members. You can divide profits in proportion to each member’s ownership percentage. You can also divide profits evenly among all members, regardless of ownership status. You and the other members get to decide how.
Include details about when and how profit distribution will occur. Some companies handle distributions at the start of the new fiscal year, while others pick a particular quarter in which to get this done.
4. Managerial Structure
A Louisiana LLC Operating Agreement should offer details about management of the company, specifically whether your company will be member-managed or manager-managed. These two choices represent the two most common managerial structures for LLCs.
A member-managed LLC is one in which members of the company are responsible for most of the daily operations of the company. Implementing this structure indicates that every member will be involved in the vote-worthy decisions that will arise within the business.
A manager-managed LLC relies on a manager to supervise the operations of the company. The manager(s) can be one or more of the members, someone hired from outside the LLC, or a combination of the two.
5. Membership Duties and Responsibilities
If you choose a manager-managed LLC structure in your Louisiana Operating Agreement, include as much detail as possible about every manager’s duties. Do not shy away from distinguishing between when it’s permissible for a manager to make an independent judgment call and when other members must be consulted first.
Make sure your Louisiana Operating Agreement makes provisions for the obligations of members. Even where members may not play an active role in the company’s daily operational structure, their participation in meetings and other input scenarios should be addressed.
6. Voting Rights
An outline for fair voting rights will be an integral part of your Louisiana LLC Operating Agreement. Consider items such as voting power very carefully. Will all members have equal voting rights, despite ownership percentages? What kind of company decisions require a vote? Do votes need to be unanimous or just a majority to win?
The decisions you make in this section of your Louisiana Operating Agreement can affect your company significantly. It’s wise to confer with all participating members and managers as you draft these details.
7. Meeting Guidelines
Guidelines for meetings should be drafted into your Louisiana LLC Operating Agreement. Items such as annual reviews, voting matters, and merger decisions will arise at your regular meetings. Let your Operating Agreement dictate how these fundamental meetings will be run, and when and how often they will take place. Especially in the case of manager-managed LLCs, mandatory meetings represent a way to encourage members toward greater engagement with the company’s overall growth.
8. Buyout and Buy-Sell Rules
Your Louisiana LLC Operating Agreement should be written with your company’s ideal expansion as a cornerstone. Write clear guidelines on membership rules and how new members should be inducted.
Companies can also lose members over time. Your Louisiana Operating Agreement needs to be written with this eventuality in mind. Consider how to handle a leaving member’s ownership percentage. Include details about what percentage (if any) a potential new member must buy in at. Remember that taking the time to truly evaluate company goals and then writing this section insightfully with regard to those goals can contribute to the long-term growth of your business.
9. Succession Planning
No one likes to think about the hard truths that life and business are highly unpredictable. However, your Louisiana LLC Operating Agreement must reckon with these truths and present a plan if a member passes away. Include provisions for the proper transfer of ownership in such a case and also in the case of regular retirements.
Your Operating Agreement needs to clarify whether ownership percentages are passed to surviving family members and whether they can be left as elements of a last will and testament. You have the option here to specify that the ownership percentage of your company belonging to a deceased member must pass back into the business entity.
Do not forget about yourself when you are drafting this part of your Louisiana LLC Operating Agreement. What happens to the company if you are unable to carry on your role? Who is designated to step in for you in a leadership capacity in the event of a hardship? Writing in these crucial considerations can protect the longevity and mission of your Louisiana LLC.
Dissolution is another possible contingency that your Louisiana Operating Agreement must serve to direct. Companies may dissolve for all sorts of reasons, both positive and negative. This portion of the document can be written to address different rules for dissolution relative to the ways that the company might cease to be.
For example, if your LLC concludes because certain members want to venture out on their own, you might specify how final obligations, taxes, and other responsibilities must be handled. If economic hardship or internal duress were to be the culprit of your company’s demise, it might be prudent to stipulate the steps for the completion of all remaining administrative duties.
No document pertaining to something as dynamic as a business can ever be finished or static. Your Louisiana LLC Operating Agreement is no exception. The good news is that you can make additions and changes as needed, but this privilege should be written into your first Operating Agreement.
Modifications can include items such as changes in voting rights, the addition and responsibilities of new managers, and even the manner in which investment returns will be handled. Take the time to make educated choices about how you would like modifications to your Louisiana Operating Agreement to be made and put as much detail as you can into the steps to implement modifications.
12. Single-Member LLC Statue
What if you are the only member of your LLC and the only one drafting your Louisiana Operating Agreement? Single-member LLCs also need their Operating Agreements because it will be just that one member who bears 100% of the company ownership and responsibilities.
A single-member LLC statute needs to appear in your Louisiana LLC Operating Agreement if you are founding your company alone. Even though elements like voting rights may not apply to your draft, this document still functions as legal proof that you are the sole owner and manager of your business.
13. Severability Provision
Finally, your Louisiana Operating Agreement needs a clause that clarifies the independence of each segment of the document. A severability provision states that if one part of the Operating Agreement is found to be faulty, no mistake or imperfection can impact the validity of the other parts of the agreement. This step protects you, your members, and the LLC against wasted time or possible loss of investment income due to an error.
Partner With ZenBusiness for Professional Assistance
Perhaps the idea of combining all of this information into a cohesive Louisiana LLC Operating Agreement seems overwhelming to you. You do not have to create your Operating Agreement alone! ZenBusiness has an excellent resource to support you as you draft this all-important piece of your future company. Our customizable Operating Agreement template can get you started on the right path.
Updating and Revising Your Louisiana LLC Operating Agreement
Your Louisiana LLC Operating Agreement should be viewed as a living document that will call for revisions alongside the changes seen by your business. Build flexibility and room for growth into the initial language of the document so that making amendments later is as easy as possible.
Normal changes will take place throughout the life span of your company. Make routine revisiting of your Operating Agreement a fundamental part of at least one meeting per year, potentially when you’re getting ready to file your annual report and update things like any changes to your registered agent and/or registered office. Get feedback from other members and managers about how best to enhance the document’s reflection of company progress and values.
A few easy steps to the successful revision of your Louisiana LLC Operating Agreement include:
- Read the document to make sure the rules and expectations still make sense with regard to the goals and procedures of your company.
- Record all changes in writing. Verbal agreements do not stand in for written contracts.
- Have all members sign the revised Operating Agreement, making sure to create time for members who might have been absent at the time of the revision to read the document and discuss it with you before signing.
There may be some changes that require you to update your official information with the Louisiana Secretary of State. For example, items such as changes in members or managers or changes in the registered agent have their own forms and fees associated. The fee for filing a change to either of those two items is $25 each.
Louisiana Operating Agreement FAQs
- Is an LLC Operating Agreement required in Louisiana?
In short, no. State law in Louisiana does not mandate that you have an Operating Agreement in place to start an LLC. However, it is highly inadvisable to found any LLC without a strong Operating Agreement.
- Where do I get an LLC Operating Agreement in Louisiana?
ZenBusiness offers a ready-made template for your Louisiana LLC Operating Agreement needs. No matter the size or goals of your company, we can help you with an Operating Agreement that will reflect your company’s unique goals and values.
- Does a single-member LLC need an Operating Agreement in Louisiana?
An argument could be made that an Operating Agreement is as vital for a single-member LLC than it is for a multi-member LLC. One reason for this is that it provides a legal document showing that you are the sole decision-maker and owner of your enterprise.
- Do I file an LLC Operating Agreement with Louisiana?
The Louisiana Secretary of State does not ask you to submit an Operating Agreement when you file your Articles of Organization. However, the segment of your articles that leaves room for “other provisions” can be used for this purpose.
- Can I write my own LLC Operating Agreement in Louisiana?
Yes, there is no legal requirement that your Louisiana LLC Operating Agreement must be drafted by an attorney or another outside entity. That said, enlisting the help of trustworthy professionals like ZenBusiness eliminates stress and helps ensure that your Operating Agreement meets all of your professional and personal goals.
- Do I need a lawyer for an LLC Operating Agreement in Louisiana?
There is no legal requirement that specifies you must hire an attorney during the drafting of your Louisiana LLC Operating Agreement. Some entrepreneurs choose to engage a lawyer because they desire access to advice about state-specific laws.
Lawyers can also help gauge high-risk scenarios that might impact your business, and they can write clauses into your Operating Agreement that pertain directly to litigation relative to your new company.