Starting a limited liability company (LLC) is an empowering and exciting experience. By creating your own opportunity, you stand to benefit from your own hard work, creative effort, and innovative ideas, rather than using your talents for someone else’s profit.
It’s not always easy being in charge, though. While owning a business will change your life, there are many challenges that come with an ownership role. If you’re a solo business owner, you shoulder the failures and successes yourself. If you build a team — including employees and other investors — it can sometimes be difficult to get everyone on the same page.
Launch your business on the right foot by creating an Operating Agreement to guide your company. This important legal document will serve as the backbone of your business. It outlines how your company will operate, delineates your ownership structure, and determines the rights, powers, duties, and liabilities of everyone involved. It’s also an excellent indicator of the day-to-day decisions that should be made for your company.
In addition to serving as a beacon for your business’s operations, this agreement establishes your company’s limited liability status and further protects the personal assets of all partners.
By drafting a comprehensive New York LLC Operating Agreement, you create an extra layer of personal protection as you build your brand and your company grows. Read on to learn how to write this document for your LLC and which terms you should include in your Operating Agreement.
What is a New York LLC Operating Agreement?
When launching a new venture, you’ll choose from several business structures. One of the common business types is an LLC. In this type of business, you get the best of both worlds — the limited liability and protections like a corporation and flexibility similar to a partnership.
An LLC may be owned by a single individual or multiple entities, who are called members. These entities may be people, corporations, partnerships, or even other LLCs.
By establishing an LLC, you’re setting up a legal entity that is entirely separate from the owners who have invested in the business. This protects your personal assets should the company ever encounter legal or financial issues.
Most states don’t require an LLC to file an Operating Agreement during its formation. However, it’s not optional in the state of New York.
If you’re creating an LLC in New York, you have a legal obligation to produce a written Operating Agreement to guide the management and operation of your new company. Your members must approve this document before, at the time of, or within 90 days of filing your Articles of Organization.
You don’t need to formally file your Operating Agreement with the Secretary of State, though. Your membership just needs to draft and approve the document. Once approved, it should be filed internally at your company’s primary place of business.
Since you aren’t required to file this document with the state, there is no filing fee associated with it. However, your Operating Agreement needs to be adopted around the time you file your Articles of Organization, which costs $200 in New York.
Even in states where it isn’t a legal requirement, it’s recommended that all LLCs create such a document. After all, the directions laid out in your Operating Agreement could mean the difference between success and failure for your business.
Your New York LLC Operating Agreement is an integral document that has many uses in regards to the affairs of the company. First, it provides guidelines for your company’s financial and operating decisions. It also determines the duties and privileges for your owners, managers, and employees. It’s an essential document that determines how your company operates and sets your business on a path toward success.
Why do I need an LLC Operating Agreement in New York?
The most compelling reason you should create an Operating Agreement for your New York LLC is that the state requires you to do so. Although state law doesn’t specify any fines or other consequences for not following this particular rule as an LLC, you should comply with the law.
Aside from any legal issues that might arise if you chose not to file an Operating Agreement in New York, it’s simply good business practice to have one. This document sets the tone for how your company is run, and there are numerous benefits for establishing this agreement at the time of your LLC’s formation.
In addition to setting the structure for your business operations, it further protects the members from personal liability. According to the U.S. Small Business Administration (SBA), this aids your company’s limited liability status. And without an Operating Agreement, it will be difficult for your membership and management to overcome any conflicts about operations and finances.
It’s a handy document to have on file should disputes among your LLC’s members arise at any point. Whether you’re going into business with family or friends who you know well or other investors you’re just getting to know, there are likely to be instances where there could be some contention over business decisions.
Luckily, when this happens, you can turn to your Operating Agreement, which lays out how the company is run. Having it in writing will help your members resolve any conflicts.
From a financial perspective, an Operating Agreement is also useful. Often, when you open a business bank account or apply for loans and other types of funding, these financial institutions and lenders will likely request a copy of your agreement.
By writing your own Operating Agreement in New York, the rules you set in place can supersede the default laws established by the state’s Limited Liability Company Law. This puts more control in the hands of your LLC membership.
What do I include in my New York LLC Operating Agreement?
When you compare businesses side by side, each one is unique. They have different structures, different management styles, and different methods of distributing profits.
This means there is no one-size-fits-all Operating Agreement. And there is no specific Operating Agreement form to file for your LLC in New York. You need to draft your own agreement.
The terms you include in your document really depend on your business. Step back and consider the type of products and services you offer and the interests of your members.
Do the members want to run the day-to-day operations, or do you want to hire a manager? How frequently do members want to be paid? What are their voting rights and responsibilities?
Also, consider your industry. What are the norms of your field? What is the size and scope of your company? Are there any legal requirements, either federally or at the state level, that you need to consider?
According to the SBA, there are certain terms you may want to include in any New York LLC Operating Agreement:
- LLC Name
- Management Structure
- Powers and Duties of Members and Managers
- Voting Rights and Responsibilities
- Distribution of Profits
- Guidelines for Scheduling and Holding Meetings
- Buyout and Buy-Sell Rules
- Dissolution of the LLC
- Modifying Your Operating Agreement
1. LLC Name
When creating your business’s Operating Agreement, the name of the company should read exactly as it does in your Articles of Organization, down to the very last letter.
It should be spelled the same in both documents. And in New York, your company’s name needs to include the words “Limited Liability Company” or an appropriate abbreviation, such as “LLC” or “L.L.C.”
Also, when forming your company, remember that there is a lengthy list of prohibited or restricted words and phrases when it comes to naming your LLC in New York.
In your Operating Agreement, you should include a list of all members of the LLC who have invested in the company. These owners can be individuals, or they can be other businesses, including corporations, partnerships, and other LLCs. They just need to be clearly named in your Operating Agreement along with their specific membership interest.
In addition to the names of your members, you would include their ownership percentages in this section. These numbers can be based solely on the amount each entity invested in the LLC, or you can give certain members a higher ownership percentage if they are more involved in the company’s management. It just comes down to a conversation among members about the structure they’re most comfortable with creating.
Also, it’s possible to structure your business as a single-member LLC. In this case, you would be the sole member but still enjoy the same protection from personal liability.
3. Management Structure
When setting up your LLC’s management structure, there are two options: member-managed and manager-managed. In New York, unless your Operating Agreement specifies otherwise, your LLC will default to a member-managed company.
So, this is an important term to include in your Operating Agreement. You don’t want the state to decide for you, right?
Determine which management style works best for your company. Decide how involved you want members to be. Do you want any of them making day-to-day decisions that affect the business? Do your members even want to take on this additional responsibility? Or would they prefer to hire a manager and establish a manager-managed LLC?
This manager may be part of the membership team, or they could be an entirely separate individual. Again, it comes down to what works best for your company. The individual in this managerial position will oversee the company daily, and members will take on a less involved role.
4. Powers and Duties of Members and Managers
As you form your LLC, you’ll need to determine the expectations of your members, managers, and employees.
In your Operating Agreement, you should lay out the specific duties of those involved in your company. How involved will your members be? Will some members take on more duties than others? How much power should your manager have?
Even your least-involved members will still be required to vote on major issues pertaining to your LLC.
5. Voting Rights and Responsibilities
The members of your LLC will vote on issues related to your company. This section of your Operating Agreement determines when and how these votes take place. Will voting take place at in-person meetings? Can they be cast remotely? How much voting power will each member have, and how is that determined?
6. Distribution of Profits
Your LLC’s profits will be distributed among its membership. This distribution could get complicated, but your Operating Agreement delineates how it takes place.
The distribution of profits doesn’t necessarily need to be based on your members’ ownership percentages. However, this might be the easiest way to determine this.
You can also offer a percentage of profits to management and additional funds to members who are more involved in the business or based on other factors.
7. Guidelines for Scheduling and Holding Meetings
There are no legal requirements regarding when and how your LLC’s members hold meetings.
Still, these meetings are important for running your business and making decisions. So, you should include guidelines for meetings in your Operating Agreement. This will establish when, where, and how they take place and whether or not it is part of the obligations of the members.
8. Buyout and Buy-Sell Rules
The membership of your LLC will likely change over time. It’s a common occurrence for members to resign and for new entities to replace them.
This might be fairly common, but it doesn’t make it less jarring for your business. To make for a smoother transition when these changes take place, your Operating Agreement should delineate a process for buyouts and sales of ownership portions of the company.
Life happens, and members might choose to step away from the LLC for numerous reasons. Some might decide to retire. Others could face health issues or other personal emergencies that require their attention. Others, still, might simply decide they want to pursue new interests.
Your Operating Agreement should determine how they are paid out when they leave your LLC. Additionally, it should delineate who can buy their percentage of the LLC. If this isn’t addressed in your Operating Agreement, you’ll have less control over who takes over a member’s ownership portion in the event of a death, bankruptcy, or divorce.
So, determine which buyers you want to have the first crack at these ownership percentages in the company. Do you want to let current members have the option of purchasing these additional ownership portions first? Or do you want to bring in new members?
This section of the agreement should also establish how new members are voted in. Is a unanimous membership vote required to allow new entities to join the business or a majority of current members? Also, do you want to set a minimum investment for new partners?
9. Dissolution of the LLC
There are often many loose ends to take care of when you shut down a business. Your Operating Agreement lays out how you launch your company, how you run it, and how you end it.
This document should determine what the process of winding down looks like for your business. How many member votes are needed to approve dissolving it? Also, what happens with the LLC’s remaining assets? Obviously, these assets should first be used to repay any debts to creditors.
But after that, how will the remaining assets be distributed among members? Having a plan in place will make this process less stressful, as there are likely to be fewer conflicts if everything is laid out in writing.
Also, when you shut down your LLC in New York state, remember to file your Articles of Dissolution. There is a $60 filing fee associated with this.
If you don’t file this document, even if your membership has voted to dissolve the company, it could still be considered active by the state. In this scenario, you might unknowingly rack up business taxes and other annual fees.
10. Modifying Your Operating Agreement
The Operating Agreement you create when you launch your company will look much different over time as your LLC grows and evolves. To adapt to your changing business, your members can vote to modify your New York LLC Operating Agreement at any point.
Your agreement should delineate how these changes get made, though.
If your Operating Agreement allows it, your members can modify any section at any time. They can add entirely new terms to the agreement or remove sections that no longer work. Or they might tweak small portions of existing terms.
Your Operating Agreement states how membership votes to make these changes can occur. When can they take place? At special meetings or only at regularly scheduled meetings? Are a certain number of votes required?
Also, remember, if your membership updates your Operating Agreement so that it no longer matches your Articles of Organization in New York, you’ll need to update that document, as well.
Partner With ZenBusiness for Professional Assistance
Any member of your team can write your LLC’s Operating Agreement. A legal professional isn’t required to create this document.
Still, it is a legally binding agreement. So, if you or any other LLC member chooses to write this document for your company, make sure you do the research. You’ll need to put in the effort to create a comprehensive guideline for your company that also doesn’t violate federal or state laws.
Drafting an Operating Agreement might be overwhelming for some people. Consider hiring a business attorney to create or review this document.
ZenBusiness is also an excellent resource for creating your New York LLC Operating Agreement. Our Operating Agreement template is a handy tool to reference while crafting your company’s Operating Agreement.
Updating and Revising Your New York LLC Operating Agreement
The flexible nature of running an LLC allows you to easily update and revise your Operating Agreement as needed.
Your business will change quite a bit from the moment you launch it. So, your Operating Agreement is a fluid document that is easily updated to fit your needs as they evolve.
During periods of major transitions or even minor changes, your membership should review your Operating Agreement and make appropriate updates to it.
Changes that might call for an update to your Operating Agreement include:
- A member leaving the LLC for any reason
- Changes to the management structure
- Revisions to how profits are distributed
- Compliance with new federal or state laws
Making these changes isn’t a difficult process. First, your members should schedule a meeting to discuss the matter and vote on it. You can choose to conduct this vote at a regularly scheduled meeting, or you can set up a special meeting for an emergency vote. It all depends on how pressing the issue is.
After a decision has been made by vote, changes to the Operating Agreement should be made in writing. Finally, your members should finalize these changes by signing and acknowledging this updated version of the Operating Agreement.
Since the document isn’t filed with the state, the new version should be filed internally at your company’s primary place of business. And again, if these changes affect your Articles of Organization in New York, you should update that document, as well. Examples of changes that would require changes to your Articles of Organization include a new business name or updating your ownership structure.
A good habit to get into is to review your Operating Agreement when you’re reviewing other documents that might need to be updated. These include whether or not your registered agent and/or registered office has changed. You can also review your Operating Agreement when you’re filing your biennial statement.
New York Operating Agreement FAQs
- Is an LLC Operating Agreement required in New York?
Yes, New York is one of the few states that requires LLCs to adopt an Operating Agreement.
This document should be filed internally at your office around the time you file your Articles of Organization. You have up to 90 days after you file these articles for your membership to approve your Operating Agreement.
That said, even if your LLC existed in a state where it wasn’t legally required to draft an Operating Agreement, it would still be advisable for your business. This important document offers many benefits, from establishing guidelines for operation to providing members additional protection from personal liability.
- Where do I get an LLC Operating Agreement in New York?
There is no formal Operating Agreement document for New York LLCs. Instead, each business drafts its own document and includes terms that best suit its 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 New York?
In New York, all LLCs, including single-member LLCs with just one owner, are required to adopt an Operating Agreement.
This might seem strange since this document is often used to navigate member disputes. Why would just one person need a document telling them how to run their business?
First, they never know when they might decide to revise their ownership structure and bring in additional members. Also, an Operating Agreement has another important function: It helps create an LLC as a separate legal entity from its owners. This ultimately provides you, even as a single member, additional protection from personal liability if your company is ever sued.
- Do I file an LLC Operating Agreement with New York?
While you do not need to file your LLC’s Operating Agreement with New York state, you are legally required to adopt such a document.
Your Operating Agreement should be voted on and approved by your membership. Once approved, it should be filed as an internal document at your LLC’s primary place of business.
- Can I write my own LLC Operating Agreement in New York?
Yes, you can write your own Operating Agreement in New York. It is not required that you hire a
business attorney to write this document for your LLC.
While writing your company’s Operating Agreement, use ZenBusiness’s template as a reference.
However, this is still a legal document, even if you’re writing it yourself. So, do your research and consider hiring a legal professional to review your agreement.
- Do I need a lawyer for an LLC Operating Agreement in New York?
No, a lawyer is not required to create your Operating Agreement in New York. You can use a template from ZenBusiness and other resources to write your own Operating Agreement for your LLC.
It is advisable, though, that once your document is complete, you consult with a professional who can ensure that it doesn’t violate any state or federal laws.