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A limited liability company (LLC) helps protect members’ personal assets in the event of bankruptcy or lawsuits. Registering your business as an Oregon limited liability company can add some legitimacy and protection from legal troubles in the future. However, drafting an Operating Agreement can solidify this and add structure to your business, among many other benefits.

Registering your business as an LLC comes with paperwork. During the LLC formation process, you’ll be expected to file your Articles of Organization with the Oregon Secretary of State. Although Oregon does not require you to file an Operating Agreement, you should draft one around the same time you submit your formation documents; otherwise, you will be subject to default LLC laws. 

Since it’s not required in Oregon, some business owners might not bother with an Operating Agreement. However tempting it may be, skipping the Operating Agreement could jeopardize the security of your members’ personal assets. 

In this guide, we’ll show you why you should draft a comprehensive Operating Agreement and the steps you should take to create your Operating Agreement in Oregon.

What is an Oregon LLC Operating Agreement?

As a key document used by LLC, an Operating Agreement outlines the functions and financial decisions of a business. It should have a detailed explanation of the regulations, rules, and provisions that run the LLC. 

In short, the Operating Agreement is a legal document that governs the internal operations of a business. Although it isn’t officially required in Oregon for an LLC to have an Operating Agreement, it’s a good idea to draft one. 

An Operating Agreement: 

• Outlines regulations and the management of affairs for the LLC
• Can be modified at any time if approved by members 
• Must be consistent with the law and Articles of Organization

Why do I need an LLC Operating Agreement in Oregon?

As stated, it is not a legal requirement in Oregon for an LLC to have an Operating Agreement. However, an Operating Agreement is an incredibly important document for your business that shouldn’t be overlooked. This document sets the rules for your LLC and provides extra protection to your business. 

Even though you may be tempted to skip drafting an Operating Agreement, there are many benefits: 

• Legal protections: With an Operating Agreement, you can further separate yourself from your LLC in the eyes of the law.
• Flexibility: The exact structure of the LLC is in the hands of the members who draft the Operating Agreement. With an Operating Agreement, members can decide on how members will profit (such as percentages) and the ownership structure. 
• Legitimacy: Make your business seem more legitimate to potential investors, partners, and banks. Many banks require your business to have an Operating Agreement before allowing you to open a business bank account. In addition, potential partners and investors will likely want to see an Operating Agreement to ensure that your business is well structured.
• Manage disagreements: Because the structure and details of the business will be outlined in the Operating Agreement, it helps avoid arguments. An Operating Agreement can help avoid misunderstandings among members of the LLC. 

What do I include in my Oregon LLC Operating Agreement?

Creating a comprehensive Operating Agreement is one of the best things you can do to protect your LLC and keep it functioning for years to come. Depending on the needs and specifications of your LLC, the Operating Agreement might fall somewhere between five and 20 pages long. 

Ensure that your LLC’s Operating Agreement covers key elements by using a template. Drafting additional paperwork might feel like a nuisance, but it can put your LLC in a secure position. Once all members of the LLC sign the Operating Agreement, it’s an officially binding contract. For a low price, you can ensure that you have a comprehensive Operating Agreement by using ZenBusiness’s LLC Operating Agreement template, which can help you outline the rules and plans to govern your LLC. 

Some items you may want  to include in your Oregon Operating Agreement are:

1. Percentage of Members’ Ownership

In an Operating Agreement, it’s important to specify the percentage of ownership each member (owner) has. You can divide ownership by whatever means you like, provided all members are in agreement. For example, it could be determined by the amount of capital each member is putting into the business, but it doesn’t have to be.

2. Voting Rights and Responsibilities

Another important topic to cover in your Operating Agreement is the voting rights and responsibilities of members. You’ll need to determine how much voting power each member has; for example, will each member get a vote, or will those with a greater percentage of ownership get more?

In addition, lay down the rules for what issues require a vote, and whether that vote can be a simple majority or requires a unanimous vote from the membership.

3. Powers and Duties of Members and Managers

In addition, you’ll want to ensure that the Operating Agreement covers the powers and duties of members and managers. In the eyes of Oregon, unless stated otherwise in the Operating Agreement, all members have equal rights in the management of the company. For this reason, it’s wise to outline if certain members have management responsibilities and what specific duties each individual must complete. This way, you can ensure accountability within the LLC. 

When drafting your Operating Agreement, it’s important to outline who will run your LLC. Unless otherwise noted, an LLC is member-managed, meaning all members share equally in the management and decision-making in the LLC. To avoid any disagreements, it’s important to set boundaries in the Operating Agreement and decide which individuals have the power to manage the LLC. 

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). Decide on which management model your LLC will use and put it into your Operating Agreement.

4. Distribution of Profits

If neither the Articles of Organization nor the Operating Agreement provides rules for the distribution of profits, the profits will be split equally among members of the LLC. All LLCs should outline how profits will be split because, by default, any allocation is equal to all members in Oregon. 

This is particularly important when one member might have invested more money upfront. Let’s suppose someone invested 70% into the LLC, while the other partner invested 30%. By default, each of these members would own 50% of the company. Although some LLC members might be OK with this, others may not. Putting into your Operating Agreement the distribution of profits is incredibly important when talking in terms of allocating money.

5. Holding Meetings

The SBA recommends that all LLCs cover the subject of meetings in the Operating Agreement. Though meetings aren’t required for LLCs as they are for corporations, it’s important to hold regular meetings so that all members can align and discuss important issues for the LLC.

Specify when, where, and how often these meetings will occur. Making attendance mandatory can help keep members accountable and engaged in the business.

6. Buyout and Buy-Sell Rules

Next, LLCs should cover the procedure for buyout and buy-sell rules and the procedure for transferring ownership interest in the event of a member leaving, becoming incapacitated, or retiring. Most notably, this is important for detailing what to do in the event that the LLC is sold. Typically, all members will need to approve any changes in ownership. This should be clearly outlined in the Operating Agreement to avoid any unnecessary confusion.

Secondly, this part of the Operating Agreement needs to address what to do in the event of the death of a member. Even if all members are in pristine health, it’s important to be proactive and create a plan that everyone is comfortable with. Make sure to have a plan for what will happen to the internal management structure of your business in the event of the death of a member.

Updating and Revising Your Oregon LLC Operating Agreement

You should revisit your Operating Agreement quite regularly, either annually or whenever significant changes need to be made. Your Operating Agreement should also specify how and when amendments need to be made to your document. 

A good rule of thumb is to review your Operating Agreement when you’re looking at other regular bookkeeping activities like filing your annual report.

As Oregon doesn’t require you to file your Operating Agreement, it can be quite simple to update or revise your document, as long as it doesn’t contradict your Articles of Organization or state laws. However, if certain information changes, such as your registered agent/registered office or business name, and it appears in the Articles of Organization, you will need to file an amendment with the Oregon Secretary of State. 

Once you’ve made adjustments, all members will need to sign the Operating Agreement to make it valid in Oregon. Make sure to keep it with your other core business documents for easy access in the future.

Partner With ZenBusiness for Professional Assistance

Without an Operating Agreement, your business will have to follow the basic rules outlined by Oregon. In addition, the LLC could miss out on investments, a business bank account, and more. Additionally, having an Operating Agreement can help add legitimacy to your LLC, proving you’re a business in the eyes of the court and helping keep members’ personal assets secure. 

Luckily, drafting a comprehensive Operating Agreement is made easier with the help of ZenBusiness. At ZenBusiness, our goal is to help business owners start on the right foot by making the process simpler with a customizable template. Our team of dedicated professionals is there to offer low-cost services, expert support, and help along the way. 

We know how it is to start as business owners and the challenges that go along with it. That’s why we’ve made it our priority to help business owners put their passion to action and manifest their dreams. By simplifying the process and making business formation affordable, we hope to help small businesses grow.