If you have recently made the decision to start your own Maine limited liability company (LLC), you are on the path to a goal that many only dream of. Becoming your own boss entails smart planning around every aspect of your business. To start, a Maine LLC Operating Agreement represents one of the most imperative documents that your enterprise will require.
The Operating Agreement outlines highly specific details regarding who owns your company, at what percentage, and how the overall internal managerial structure is run. Taking the time to provide clarity on everything from voting rights to profit distribution can prevent conflicts. Your Maine Operating Agreement also serves to protect you, the owner, from legal liability.
As you prepare to launch your Maine LLC, place the generation of a strong Operating Agreement near the top of your priorities during the LLC formation process. This guide will provide an overview of what to include in your Maine LLC Operating Agreement.
What is a Maine LLC Operating Agreement?
A Maine LLC Operating Agreement is a crucial component in the success and longevity of any fledgling company in the state. It is a legal document that specifies the responsibilities of owners, the daily operational expectations, and the ownership percentages of all interested parties.
When establishing an LLC in Maine, the first step to legitimization in the eyes of the state is to file your Certificate of Formation. The filing fee for this service is $175, and completion means your Maine LLC is now registered and recognized by the Secretary of State.
By order of Maine state law, in which the Operating Agreement is referred to as the “limited liability company agreement,” all Maine LLCs must have a functional Operating Agreement on file as part of the required formation documents. This vital document is valuable beyond its legal necessity and offers your company a clear rule book for daily operational procedures.
Why do I need an LLC Operating Agreement in Maine?
Your Maine LLC Operating Agreement solidifies and governs the interior workings of your business. Once this document is signed by all members, the Operating Agreement is considered a legally binding contract, and the information it contains can be enforced in a court of law. The Operating Agreement can then serve as an invaluable point of reference when your business faces hardship, contention, legal woes, mergers, or even dissolution.
If you are still on the fence as to the importance of a Maine LLC Operating Agreement, refer to the findings of the U.S. Small Business Administration (SBA), wherein the Operating Agreement is referred to as a “key element” even in states that do not legally require businesses to have one. The Maine Operating Agreement serves to legitimize and fortify your business, functioning as an explicit guidebook to your original wishes and plans for your company.
The following list contains a few more practical benefits of drafting a Maine LLC Operating Agreement:
- Maximize LLC flexibility: Establishing an LLC in Maine offers a host of benefits, from the opportunity for pass-through taxation to tax reimbursement for businesses. As a business structure, the LLC format comes with a world of flexibility. Free from the constraints of complex regulations and reporting that govern corporations, your Maine LLC Operating Agreement can represent a place within your business to write unique, innovative approaches to doing business. To maximize the benefits of LLC flexibility, include comprehensive details about the manner in which you expect your Maine company to be owned, run, taxed, and expanded.
- Legitimize your company: Your Maine LLC Operating Agreement serves to give your business the appearance of greater organization, solidity, and presence. Even though this document is not public-facing, there will be quite a few times that you must present your Operating Agreement for your business to advance. Banks and financial institutions will ask to see it when evaluating your business to borrow money or open bank accounts. Investors and potential partners may do the same.
- Seal verbal agreements: While some oral agreements can be enforceable in a Maine court of law, you would still be at the mercy of convincing the presiding judge what was said and by whom. This is never a good position to be in regarding your business. Your Maine Operating Agreement, when written with appropriate details, can prevent embarrassing or damaging situations. Likewise, if a legal dispute erupts from an outside source against your company, your Operating Agreement draws the line of your liability.
- Safeguard against state interference: A Maine LLC Operating Agreement is recognized by the state as a self-governing document. This means that the state does not interfere or superimpose authority into matters strictly written into the Operating Agreement (within reason). Failure to have an Operating Agreement or drafting one that is too vague can mean that Maine would fill in the blanks for you when and where needed. A good example of this would be the relationship between profit distribution and ownership. If you do not specify in your Maine LLC Operating Agreement that you want equal distribution of profits regardless of ownership percentage, default state law will divide your profits in whatever manner was established by the state.
- Further protection from personal liability: One of the most vital roles your Maine Operating Agreement will serve is the additional protection of your personal assets and finances should a legal dispute affect your business. The Operating Agreement legally specifies the LLC as a separate business entity from the members who run it. Having an Operating Agreement gives additional protection to all members of your LLC, including yourself, from being held liable in any lawsuits that may be filed against your company.
What do I include in my Maine LLC Operating Agreement?
Your Maine LLC Operating Agreement must be tailored to the specifications of your business and should not resemble any other Operating Agreement for any other company. It is always a good idea to study the Operating Agreements of enterprises you respect and admire to get ideas, however.
The following items represent basic guidelines offered by the SBA pertaining to what should appear in any thorough Maine Operating Agreement:
1: LLC Name
The first item to include in your Maine LLC Operating Agreement is the correct name for your new business. Although this may seem obvious, some people may make the mistake of using their “doing business as” (DBA) name because it is the one they intend to use or are most familiar with.
If you are working on your Operating Agreement at the same time as your Certificate of Formation, make sure that you have thoroughly reviewed the Maine state laws governing LLC naming guidelines. Your Maine Operating Agreement must have the official name of your company, as it appears in your Certificate of Formation, with the correct LLC designator (“Limited Liability Company,” “Limited Company,” “LLC,” “L.L.C.,” “L.C.,” or “LC”).
All Maine LLC Operating Agreements must list every participating member and address the way that company ownership will be divided among them. “Degrees of ownership” is an area where you can be creative and specific about the way your company is split.
Many owners let capital investment dictate ownership percentage. This means that the more money a member puts into the company, the greater the company percentage that member owns. Other owners write into their Maine Operating Agreements that ownership will be divided equally among all members, regardless of capital contribution. Others may use a different metric entirely. Make these executive decisions wisely and with consideration for your company’s future as you draft your Maine LLC Operating Agreement.
3. Management Structure
The managerial structure of your LLC should be detailed in your Maine Operating Agreement. 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).
Both structures have their merits and drawbacks, so take time to evaluate what is best for your long-term business goals.
4. Duties of Members and Managers
The obligations of each member and manager should be spelled out in as much detail as possible in your Maine LLC Operating Agreement. While every member might not be granted voting rights or directional input, their involvement in meetings and other business matters should be highlighted here.
If there are certain judgment calls that you believe should require a manager to receive other input before making, detail that in your Maine Operating Agreement. Remember to have all members and managers sign your Maine Operating Agreement so that it becomes legally valid.
5. Voting Rights and Responsibilities
As voting privilege is likely to have extraordinary influence over the direction that your company takes, make sure your Maine LLC Operating Agreement outlines voting rights and responsibilities. Details to consider and include will be whether voting power is equivalent for all members, distributed differently according to ownership percentage, or some other means. You’ll also need to consider whether winning votes have to be unanimous or a majority, and what company decisions require a vote.
Give careful thought to how much power you want to align with ownership percentages. It may be that you have a member who owns three-quarters of the LLC but has no plans to actively engage managerial duties. This person may not need or want voting power equivalent to their ownership percentage.
On the other side of the coin, it may be prudent to dictate that all members have an equal share and responsibility in the direction of the business. These are decisions that should not be made lightly and are best discussed between all parties involved before drafting your Maine LLC Operating Agreement.
As you decide how to draft your Maine Operating Agreement, pay special attention to distributions. Distributions refer to the way that profits will be distributed to your members. You can decide to divide profits in proportion to each member’s ownership portion, split them evenly among all members, or use some other means.
This section of your Maine LLC Operating Agreement should also specify what time of year profit distribution will take place for your company. You can choose anything that works for your business plan, from the start of the fiscal year to the end of the third quarter.
7. Holding Meetings
Another key element in the drafting of your Maine LLC Operating Agreement is the inclusion of obligatory meetings. The meetings you will have with your members and managers will be your company’s best opportunity for handling important decisions, voting procedures, annual reviews, and other internal issues.
Your Operating Agreement can make meetings a mandatory aspect of your company’s established rules. For manager-managed LLCs, making meetings obligatory is a good way to encourage those members who may not take an active part in daily operations to stay engaged and productive within the company.
8. Buyout and Buy-Sell Rules
Membership in your LLC is bound to change over time. New members may arrive, and founding members may leave to pursue other opportunities. Your Maine LLC Operating Agreement should be written with your company’s ideal growth and expansion in mind.
Include clear guidelines on what it takes to be a member and how new members are to be inducted. This could be anything from a unanimous vote by other members to a set amount of capital contribution.
Your Maine Operating Agreement also needs to include provisions on the proper way for leaving members to exit. What occurs with a leaving person’s ownership percentage? Do incoming members need to buy in at the same percentage? Ponder these decisions carefully as you draft your Operating Agreement, and try to come to conclusions that best support your company’s long-term growth.
9. Succession Planning
Succession planning can be a difficult aspect of your Maine LLC Operating Agreement to write, but it is an essential one. This segment of your Operating Agreement governs what happens when an LLC member retires or passes away. What becomes of that departed member’s stake in the business? Can family members or loved ones inherit?
Make sure not to forget provisions for yourself as the founder. What should happen to the company upon inability on your part to carry it forward? These are vital considerations that can impact the stability and longevity of your Maine LLC.
Another kind of contingency that may affect your business and requires inclusion in your Maine LLC Operating Agreement is dissolution. Companies come and go for endless reasons, and your Operating Agreement needs to provide a plan in case your company faces dissolution.
For example, if your Maine LLC breaks up due to members or managers wanting to move on to their own projects, you might include details that specify how final tax obligations and distributions should be handled. If your company goes under due to an external factor, such as an economic downturn, it would be wise to include steps for meeting existing company financial obligations, which may be outstanding at that time.
The Maine Secretary of State requires the filing of a Certificate of Cancellation for an LLC to be dissolved. The fee associated with filing this document is $75.
11. Modifications to the Operating Agreement
Your Maine LLC Operating Agreement should be regarded as a constantly evolving document. You will need to get into the habit of revisiting it annually to check that its details still serve your business needs.
Updating your Operating Agreement whenever changes are made to your ownership, registered agent status, or designated address should also be reported to the Maine Secretary of State. Write specifications on how amendments can be made and whether modifications will require votes. Include details about whether votes must be unanimous or represent a majority opinion.
Do not forget to have modifications to your Maine LLC Operating Agreement signed for by all members. Their renewed signatures will be needed for changes to be legally binding.
12. Single-Member LLC Statue
It might appear as though many of the points covered here do not apply to single-member LLC owners. However, single-member LLC owners also need an Operating Agreement.
While certain elements like voting rights may be irrelevant, you still need your Maine LLC Operating Agreement to function as further legal distinction between you and your business. You still need it for the legitimization of your company and standardized processes pertaining to your business.
13. Severability Provision
As a final standard inclusion, most well-written Maine LLC Operating Agreements contain a severability provision. A severability provision is a clause that makes it clear that one segment of a contract cannot nullify every other part of that contract.
For example, if a single mistake is found in one part of your Maine Operating Agreement, you do not want the whole document to become invalid or be rendered legally untenable. A severability provision states that the Operating Agreement remains binding and meaningful even when parts of it may be incorrect.
Writing in a severability provision protects you and your LLC members from wasted time, confusion, and potential loss of investment income over small oversights.
Get Help Creating Your Operating Agreement
If all of these considerations have made your head spin, do not fret. ZenBusiness has the resources to support you during the drafting of this important document. With our customizable Operating Agreement template, we can help you get a handle on drafting your Maine LLC Operating Agreement today.
Updating and Revising Your Maine LLC Operating Agreement
As mentioned, a Maine LLC Operating Agreement should be viewed as a living document that will be subject to changes and revisions when needed. Building flexibility into the document is key to having changes go smoothly.
Normal shifts will occur in the life span of any business, and you should make a point of scheduling an Operating Agreement check-in at least once a year, even when no immediate changes are pending. Do the verbiage and structure still reflect your company’s goals? Are member duties accurate and fair?
Annual meetings will be a part of your LLC life anyway, and these can be great opportunities for an automatic review of your Maine Operating Agreement. You can think about reviewing it when you’re also planning on filing your annual report. You can work reviews and changes into the regular calendar of your business proceedings for ease and simplicity.
A few easy steps to the successful revision of or routine check-in with your Maine Operating Agreement include:
- Read the document to make sure guidelines still match the goals and procedures of your company. If you have written steps on how amendments should be made, any changes here should just be a matter of following the rules you wrote.
- Ensure that all required changes are recorded in writing. No oral agreement should stand in for a written amendment to your Maine LLC Operating Agreement.
- Just as with your original document, all members and managers need to sign off on the new version for changes to be valid.
Don’t forget that serious changes, such as to your company’s registered agent, must be filed with the Secretary of State. Most fees for changes of this nature range between $10 and $35.
More Maine LLC Operating Agreement FAQs
- Is an LLC Operating Agreement required in Maine?
Yes, Maine LLCs are required to include what state law refers to as a “limited liability company agreement.” This is the Maine LLC Operating Agreement, just by a different name. The pertinent statute reads:
“A limited liability company agreement must be entered into or otherwise existing. The limited liability company agreement may be entered into either before, after or at the time of the filing of a certificate of formation. Whether entered into or otherwise existing before, after or at the time of the filing of a certificate of formation, a limited liability company agreement may be made effective as of the formation of the limited liability company or at another time or date as provided in or reflected by the limited liability company agreement.”
- Where do I get an LLC Operating Agreement in Maine?
ZenBusiness offers a ready-made template for all of your Maine Operating Agreement needs. We can help you with an Operating Agreement that will reflect your company’s unique values.
- Does a single-member LLC need an Operating Agreement in Maine?
Yes, all LLC structures should have a Maine LLC Operating Agreement drafted to their specific business guidelines. Single-member LLCs also need an Operating Agreement because there is only one person making all of the decisions for the company. Having an Operating Agreement provides a further and more specific degree of separation between yourself as an individual and your company.
- Do I file an LLC Operating Agreement with Maine?
Yes, the Maine Secretary of State will expect your Operating Agreement to accompany your Certificate of Formation.
- Can I write my own LLC Operating Agreement in Maine?
Yes, there is no legal requirement in Maine to engage an outside agent for the drafting of your Operating Agreement. However, enlisting the help of trusted professionals, like ZenBusiness, can take the stress and guesswork out of the equation and help ensure that your Operating Agreement meets all of your professional expectations.
- Do I need a lawyer for an LLC Operating Agreement in Maine?
You do not need a lawyer; however, you might want to have a legal professional check your Operating Agreement for mistakes and completeness before finalizing it.