It’s a wonderful time to launch a business in the Badger State. Boasting a pro-business climate, the state and local municipalities offer various incentives to new companies — from tax credits and hiring incentives to unique granting programs.
However, there are some challenges that naturally arise with launching a new company. If you’re working alone, it’s tough to shoulder all of the stress that comes with running a business on your own. At the same time, it can be difficult to get multiple owners working together on the same page.
By creating an Operating Agreement when you form your company, though, you can address some of the issues that might emerge in advance.
This is a valuable document — one designed to provide oversight and governance for your company. It determines everything you need to know about running your business, including its ownership makeup, management structure, and other things that might affect daily operations.
If there’s ever conflict among the owners, it’s a convenient tool to have in place. With the nuts and bolts of the company in writing, it’s easy to quell any disagreements. Additionally, your Operating Agreement establishes your company’s limited liability status, which protects the personal assets of the owners.
Read on to learn how to write a Wisconsin LLC Operating Agreement and which terms you should include.
What is a Wisconsin LLC Operating Agreement?
As you launch your company, you need to determine which business structure is the best fit. There are four basic types to choose from: sole proprietorship, partnership, corporation, and limited liability company (LLC).
An LLC is popular among owners of smaller businesses. It offers the tax structure and flexibility of a partnership but the limited liability protection of a corporation.
LLCs may be owned by a single entity or multiple entities, which can be an individual or another business, including corporations, partnerships, or other LLCs. All LLC owners are called members.
By registering an LLC, you’re creating a new entity separate from all of the company’s members. This entity acts as a layer of protection for your members. If the company is sued, the owners’ personal assets won’t be touched.
In most states, including Wisconsin, there are no legal requirements for you to create an Operating Agreement while forming your LLC.
Still, it’s recommended that when you file your Articles of Organization with the Wisconsin Department of Financial Institutions that you also draft an Operating Agreement. It makes good business sense to adopt this document, which is for your personal use and only needs to be filed at your company’s primary place of business.
It’s important to recognize, also, that if you don’t have an Operating Agreement, by law, the courts will default to state statutes regarding LLCs should any conflicts arise. If you write your own Operating Agreement, though, this is the document that will be held up in court.
Since an Operating Agreement is not legally required, there are no state or other government fees associated with adopting it. It costs $130 to file your Articles of Organization, though. Most LLCs will approve their Operating Agreement at the organizational meeting they hold around the time they file their articles.
Why do I need an LLC Operating Agreement in Wisconsin?
Although you’re not required to adopt an Operating Agreement for your LLC in Wisconsin, creating one for your business should still be a top priority to outline the affairs of the company.
This document will stand as the cornerstone for your company, establishing everything from day-to-day operations to long-term planning for your LLC. Having an Operating Agreement also allows you to retain more control over your company. Otherwise, you’ll default to Wisconsin’s state statutes in place for LLCs.
In addition to creating guidelines for your company, this document establishes your company’s limited liability status, says the U.S. Small Business Administration (SBA). This protects your members’ personal assets in the event of a lawsuit.
Your Operating Agreement also serves as a guide for your members during internal disputes. If any members challenge decisions made regarding the company, they’ll find their answers in this document.
This agreement even plays a role in your company’s finances. Many banks will require a copy of it before they allow you to open a business bank account. Also, lenders will often want to review your Operating Agreement before financing your business.
What do I include in my Wisconsin LLC Operating Agreement?
Since every business is different, each one will have its own unique needs and interests to consider when drafting an Operating Agreement. No two companies will have the same document, which businesses write from scratch.
The members of your Wisconsin LLC will determine what is included in your agreement. What should the day-to-day operations look like? What management structure will work best for your company? How should profits be paid out?
Your Operating Agreement will cover other various important terms, as well, including the buyout process and how to dissolve the company. The Wisconsin Department of Revenue has this guide that you can use as a reference point. It outlines everything from who can form an LLC to how an LLC will be treated under internal revenue code.
While determining which items to include in your Operating Agreement, consider the norms of your industry. What terms do other businesses include? Also, consider state and federal laws. Your Operating Agreement should be legally compliant.
However, there are certain basic terms most Wisconsin LLCs will want to include in their Operating Agreements, according to the SBA. Their terms include:
- LLC Name
- Management Structure
- Powers and Duties of Members and Managers
- Voting Rights and Responsibilities
- Distribution of Profits and Losses
- Guidelines for Scheduling and Holding Meetings
- Buyout and Buy-Sell Rules
- Dissolution of the LLC
- Modifying Your Operating Agreement
1. LLC Name
The first part of your Operating Agreement should list the full name of the company. It should match the name written in your Articles of Organization when filing with the state. Wisconsin statute says your name must also include the words “Limited Liability Company” or an appropriate abbreviation, such as “LLC” or “L.L.C.”
Your ownership section should list the names of all members who have invested capital contributions in your LLC as owners. The amount they invest is their ownership interest or, as members, their membership interest.
Remember, it is possible to form a single-member LLC, which has only one owner but still benefits from the personal liability protection provided by this business type. Your LLC can also have multiple members, which can be a mix of individuals and other businesses.
All owners should be named in this section of the document. In addition to their names, you need to include their ownership percentages in this portion of the Operating Agreement. You’ll also want to record their initial capital contributions to the company.
3. Management Structure
When it comes to management of the company, your Operating Agreement should outline your company’s management structure. Your LLC will be member-managed or manager-managed.
Your members can choose to be passive owners or more hands-on. If your members choose to be more passive, what do you want your hired management team to look like?
Also, remember that if you choose a manager-managed structure, you can select one or more members to take on management positions.
4. Powers and Duties of Members and Managers
This section establishes the powers and duties of members and managers. It lays out the authorities and expectations for everyone involved.
5. Voting Rights and Responsibilities
All members — both passive members and those more involved — having voting rights and responsibilities. They’ll make decisions on matters affecting your LLC.
Your Operating Agreement should determine this process. When and how does voting take place?
Also, you need to determine the value of each member’s vote.
6. Distribution of Profits and Losses
Each year, your LLC’s profits and losses will be distributed to your members. To make this process less complicated, it’s helpful to delineate how this distribution will take place. You’ll want to be as specific as possible here, including how cash and your company’s assets will be distributed and what each member’s share is.
Once your tax structure is determined, other factors also go into your LLC’s profit distribution, such as members’ ownership percentages and their level of involvement.
7. Guidelines for Scheduling and Holding Meetings
There are no specific requirements for how your LLC schedules or holds member meetings.
It’s still a good idea to create guidelines for these meetings. Several things to consider are when, where, and how you want these meetings to take place. Will members only meet annually or more frequently?
8. Buyout and Buy-Sell Rules
It’s possible your LLC’s membership will change at some point. This happens when someone retires or decides to move on to new projects. Then, there are unexpected circumstances, like death, divorce, or bankruptcy.
To make this transition easier, use your Operating Agreement to establish buyout and buy-sell rules for membership changes. Determine how members are paid out when they leave your company. You should also set who receives the first opportunity to purchase their shares — current members or new entities?
9. Dissolution of the LLC
Your Operating Agreement is just as useful when you’re shutting down your business as when you’re first forming your LLC.
In this section, you should determine the process for closing your business. How many members need to approve your LLC’s dissolution? Will you require a unanimous vote or a majority?
Also, what happens to the remaining assets after you pay off your LLC’s debt? How will it be distributed among members?
Keep in mind that when you dissolve your LLC in Wisconsin, you need to file the Articles of Dissolution with the state. There is a $20 filing fee for this.
If you don’t fill out this document, your LLC will still be considered in business in the eyes of the state, which means you could still owe annual taxes and other fees. Also, for each year you don’t file your Articles of Dissolution, there’s an additional $25 fee.
10. Modifying Your Operating Agreement
Change is a natural part of doing business. And as your company grows, your LLC will look different over time. As you evolve, you’ll start to have different needs from when you first launched it.
Luckily, your Operating Agreement is fluid. Your members can revise it at any point, should your business interests and needs call for it. They just need to vote on it.
This section of your Operating Agreement determines how changes will be made to it. Establish guidelines for how your members can vote on modifications to the document.
And remember that any time you make changes to your Operating Agreement, you’ll need to update your Articles of Organization so that the two documents match.
More Wisconsin LLC Operating Agreement FAQs
- Is an LLC Operating Agreement required in Wisconsin?
No, an Operating Agreement is not required for Wisconsin LLCs.
Even though it isn’t legally required, experts still advise that all businesses draft an Operating Agreement. This valuable document establishes guidelines to help you launch your LLC and lead it to success.
- Where do I get an LLC Operating Agreement in Wisconsin?
In Wisconsin, there is no formal document for Operating Agreements. Each business must draft one from scratch, which allows it to tailor the agreement to its unique needs and interests as a company.
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 Wisconsin?
Operating Agreements are not required for either type of LLC — single-member or multi-member — in Wisconsin. But it is recommended that all LLCs have an Operating Agreement in place, even single-member LLCs.
There are tremendous benefits for single-member LLCs. This document provides them with the same personal liability protections that it would a multi-member LLC.
And businesses are constantly changing. You might start out as a single-member LLC and decide down the road to welcome other owners. Having an Operating Agreement in place will make it easier to bring in additional members.
- Do I file an LLC Operating Agreement with Wisconsin?
No, you are not required to file an Operating Agreement with Wisconsin. If your membership adopts such a document, it should be filed internally at your LLC’s primary place of business.
- Can I write my own LLC Operating Agreement in Wisconsin?
Yes, you can write your own Operating Agreement in Wisconsin. It is not required that you hire a business attorney or another professional to write this document for your LLC.
It’s advisable, though, that you consult with a professional to review your final document.
Also, while writing your company’s Operating Agreement, check ZenBusiness’s template as a reference.
- Do I need a lawyer for an LLC Operating Agreement in Wisconsin?
No, a lawyer is not required to create or review your Operating Agreement in Wisconsin. You can use a template from ZenBusiness and other resources to write your own Operating Agreement for your LLC.
Once your Operating Agreement has been written, though, you should consider consulting an attorney to review the document before your membership votes to approve it. This professional can ensure that your document doesn’t violate any state or federal laws.