Whether you’re a first-time entrepreneur or own several businesses, running a limited liability company (LLC) can be an exhilarating and rewarding experience. It’s empowering to take your ideas, put them into practice, and watch them grow.
That said, there are some challenges that come with owning a company. It’s not always easy taking on ownership responsibilities. If you’re the sole owner of your business, that’s a lot to handle by yourself. And if you’re working with other investors or managers, it can sometimes be difficult to get everyone moving in the same direction.
As you form your company, though, it’s important to create an Operating Agreement to govern your business. This valuable document dictates everything you need to know about how your company will be structured, managed, and run.
Your Operating Agreement determines your business’s ownership and management structure. It lays out the responsibilities, rights, and powers of everyone involved with the company.
It’s a shining light that guides your operations. Not only that, but it will help your team hash out any conflicts that might arise. If any owners (called “members” in an LLC) disagree on business matters, you should turn to your Operating Agreement to determine who is right so that you can move forward peacefully.
This document also reinforces your company’s limited liability status, creating an added layer of protection for your owners’ personal assets.
A comprehensive Operating Agreement is key to your company’s success. As you build your brand, you’ll be glad that you have this document in place to guide you. Read on to learn how to write a North Carolina LLC Operating Agreement and which terms and topics you should include.
What is a North Carolina LLC Operating Agreement?
As you form your business, you’ll need to decide which type of structure to adopt. One of the more common types is an LLC. There are several benefits associated with this business structure.
As an LLC, much like a corporation, you’re establishing a limited liability entity that brings personal protection to its owners. At the same time, an LLC offers partnership-style flexibility to those involved with the company. Your LLC may have a single owner, or it can be owned by multiple entities. All owners are referred to as members.
Once you’ve established your new LLC, you’ve created a new legal entity, one that is completely separate from all of its members. This new entity provides protection of each member’s personal assets should the business be sued.
Like many states, North Carolina doesn’t require LLCs to create or file an Operating Agreement when formed. Still, when you’re creating an LLC in North Carolina, your company should write and adopt an Operating Agreement. It’s simply good business practice.
If you don’t create an Operating Agreement, if any issues arise, you’ll default to the rules set in place by the North Carolina Limited Liability Company Act. If your conflicts are taken to court, determinations will be made based on this act.
That’s a lot of control to give up if you don’t have to. It’s in your best interest to write your own Operating Agreement with terms agreed upon by members. Determinations based on the set state statute can be less predictable.
In North Carolina, since you don’t need to file an Operating Agreement with the state, it’s more of an internal — though still legally binding — document. Once your membership approves the final draft of the agreement, it should be filed at your company’s primary place of business.
Many new LLCs develop and approve their Operating Agreement at the organizational meeting they hold around the time they file their Articles of Organization with the North Carolina Secretary of State. While there is no cost associated with adopting your Operating Agreement, there is a $125 fee to file your Articles of Organization.
It’s worth putting the time and effort into crafting a comprehensive North Carolina LLC Operating Agreement. This integral document provides guidelines for your company, making for smoother operations as you grow your business.
Why do I need an LLC Operating Agreement in North Carolina?
Even though North Carolina laws don’t require you to draft an Operating Agreement for your LLC, it’s still advisable that you do so.
This document will serve as the cornerstone of your company. It sets the tone for how your company will operate, and most of your decisions will be based on it. If you don’t set the rules for your company, you’ll default to North Carolina laws regarding LLCs, which won’t always benefit your business.
This handy document is also useful as guidance during member disputes. If any questions regarding operations or finances arise, managers and members can use your Operating Agreement to resolve conflicts. Having it laid out clearly in writing helps settle disagreements faster.
Operating Agreements are also important from a financial perspective. When opening a business bank account, many financial institutions will want to review a copy of your agreement. If you apply for grants or loans, you might need a copy of this document, as well.
What do I include in my North Carolina LLC Operating Agreement?
Because every business is different — each has its own needs and interests, management styles, and structures that will work best for it, etc. — you’ll want to create your own Operating Agreement from scratch.
In fact, there is no specific form to fill out to draft your Operating Agreement for your North Carolina LLC.
Your LLC’s members will decide which terms and regulations are included in this document. As you write it, think about your company’s needs. What should the day-to-day operations look like? Do your members want to oversee the business, or would you prefer to hire a manager for this?
Members can also use the Operating Agreement to determine how your LLC brings in new owners, what the buyout process looks like when a member retires, and how you might shut down your company, among other items.
Also, consider industry norms and state and federal legal requirements when writing your Operating Agreement. You always want to be compliant with the law.
According to the SBA, there are certain basic terms, though, that every North Carolina LLC Operating Agreement should include:
- 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
The information in your Operating Agreement should match what is written in your Articles of Organization. If they don’t match, this could create legal woes for you down the road. This includes how your company’s name is written.
When naming your company, it’s important to remember there are certain prohibited and restricted words in North Carolina. So, review that list before settling on a name. Your name must also include the words “Limited Liability Company” and an appropriate abbreviation of this, such as “LLC” or “L.L.C.”
List the names of all members who have invested in your LLC in the ownership section of your Operating Agreement. Membership interest should be determined by capital contributions by specific members.
It’s possible to establish a single-member LLC, which has only one owner but still benefits from the protection from personal liability this business type offers.
Your company might have multiple members. These members can be a mix of individuals and other businesses, such as corporations, partnerships, and other LLCs. It doesn’t matter who or what they are; they just need to be clearly identified in this document.
Each member should also be assigned an ownership percentage. You can base this figure on the amount of funds each member invests in the LLC, you can give a higher percentage to those more involved with the management and operations of the company, or you can use some other metric to determine ownership percentages.
3. Management Structure
Next, you’ll determine your LLC’s management structure. You’ll have two options: member-managed and manager-managed.
In North Carolina, state LLC laws default to a member-managed company if you don’t state otherwise in your Operating Agreement.
Determine which management style works best for your company. How involved do members want to be? Do they want to be more hands-on or passive owners? If they don’t want to take on additional responsibilities, how many managers do your members want to hire, and how will these positions be structured?
It’s important to remember that the person or persons named manager may also be part of the LLC’s membership.
4. Powers and Duties of Members and Managers
Your Operating Agreement will also establish the expectations of your members and managers. How involved do members want to be? If you appoint a specific manager, how much power should they have? What are their responsibilities?
5. Voting Rights and Responsibilities
All members — even those who opt for more passive ownership — will have a responsibility to vote on matters affecting the business. Your Operating Agreement should determine when and how voting takes place.
Are members required to vote in person at meetings, or will you offer a remote voting option? How often will these votes take place? At regularly scheduled events or emergency meetings?
6. Distribution of Profits
All profits will be distributed to your LLC’s members. To avoid confusion and complications, your Operating Agreement determines how this distribution occurs. You can choose to divide the profits equally, according to ownership percentages, or by some other determination. You’ll also need to determine how often and by what method the profits will be distributed.
7. Guidelines for Scheduling and Holding Meetings
There are no legal requirements regarding when and how your LLC’s members hold meetings.
It helps to have guidelines for meetings included in your Operating Agreement, though. This will establish when, where, and how meetings take place. Do you want to host an annual membership meeting, or should they meet more frequently? Determine what is best for all involved.
8. Buyout and Buy-Sell Rules
Over time, your LLC’s membership will likely change. It’s inevitable that at some point, people will decide to step back from the company while new entities step in to replace them.
Sometimes, a member might choose to retire or switch industries. Other times, there may be emergency situations and court rulings, such as death, divorce, and bankruptcy.
These transitions might cause stress for your business. That’s why it’s important to determine in advance how members are paid out when they step away from your LLC. Your team should also establish which entities have the first opportunity to purchase available ownership percentages when members leave. You could offer current members the first chance to purchase these available ownership percentages, or you can consider bringing in new members.
If you allow new members to join the LLC, determine the process for this. Will you require a vote of current members? Should approval require a unanimous vote or just a majority? Is there a minimum amount that new members must invest?
9. Dissolution of the LLC
Your Operating Agreement lays out every facet of your LLC, including the process for ending it.
This clause of your document determines the steps your membership will take to close your business. If your members decide to cease operations, how many votes are needed to dissolve the company?
Also, consider what happens to your LLC’s remaining assets. Initially, they’ll be used to pay off remaining debt, but what happens after that? How will they be distributed among members?
By creating a plan in writing for these assets, you’re less likely to encounter in-fighting and conflict among members as you wind down the business.
And remember, when you dissolve your LLC in North Carolina, you’re required to file the Articles of Dissolution. There is a $30 fee to file this document. If you don’t file this document, the state will continue to recognize your LLC as a business. This means you’ll still accrue business taxes and other fees unknowingly.
10. Modifying Your Operating Agreement
As your LLC grows and develops, the needs of your business will change, as well. Luckily, it’s easy to update your Operating Agreement to adapt to your company’s development. All it takes is the vote of your members to make these modifications.
Still, your Operating Agreement should detail how these changes happen. When can your members vote to update the document? How many votes are required to approve changes?
Any time you make certain changes to your Operating Agreement, you’ll need to update your Articles of Organization so that the two documents match.
Partner With ZenBusiness for Professional Assistance
You don’t need to be or hire a legal expert to write an Operating Agreement for your LLC. Your membership team can draft the terms together, or you can appoint one or several members to oversee its creation.
It’s important to remember that this is a legally binding document, though, so do your research and consult with professionals if you stumble along the way. You might even consider hiring a business attorney to review your document and ensure it doesn’t violate any laws.
ZenBusiness is an excellent resource for creating your North Carolina LLC Operating Agreement. Our easy-to-use Operating Agreement template is a handy tool to reference while crafting your company’s Operating Agreement.
Updating and Revising Your North Carolina LLC Operating Agreement
There are many reasons your LLC membership might need to update your Operating Agreement.
If a member leaves the LLC for any reason, you’ll need to update the ownership structure. As the business grows, you might decide a manager-managed structure works best for your LLC.
Perhaps, over time, members want to change how profits are distributed. Also, if federal or state laws change, you might need to update your Operating Agreement to comply with them.
Change is part of doing business, and it’s easy to update this flexible document. After all, its sole purpose is to serve as a guide for running your company. It’s fairly easy to make changes to your Operating Agreement.
First, your members should schedule a vote on whichever term is being considered. After members vote on a suggested change, if approved, these changes should be made in writing to the Operating Agreement. Then, your LLC’s members should sign the updated version of the Operating Agreement and have it filed internally at your company’s primary place of business.
If any changes affect information included in your Articles of Organization, remember to update that document, as well.
A good rule of thumb is to review your Operating Agreement when you’re reviewing other key documents of your North Carolina LLC. For instance, you’ll want to check whether or not your registered agent and/or registered office has changed throughout the year, or when you file your annual report.
North Carolina Operating Agreement FAQs
- Is an LLC Operating Agreement required in North Carolina?
No, an Operating Agreement is not required for North Carolina LLCs. Even so, creating this document for your company is considered a good business practice.
- Where do I get an LLC Operating Agreement in North Carolina?
Since there is no formal document for Operating Agreements, each business is free to construct their own from scratch.
ZenBusiness offers a helpful template that you can use while drafting your Operating Agreement. Each business is different and will include terms unique to its industry and needs.
- Does a single-member LLC need an Operating Agreement in North Carolina?
Operating Agreements are not required for single-member or multi-member LLCs in North Carolina. They’re recommended for both types of LLCs, though.
An Operating Agreement provides a single-member LLC with the same additional protection from personal liability as a company with multiple members. And if you choose to bring in additional owners down the road, this document will be an excellent steppingstone.
- Do I file an LLC Operating Agreement with North Carolina?
No, you are not required to file an Operating Agreement with the state of North Carolina. Once your membership approves this document, it should be filed internally at your LLC’s primary place of business.
- Can I write my own LLC Operating Agreement in North Carolina?
Yes, you can write your own Operating Agreement in North Carolina. 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.
- Do I need a lawyer for an LLC Operating Agreement in North Carolina?
No, a lawyer is not required to create or review your Operating Agreement in North Carolina. 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.