Many businesses choose to become an LLC for two main reasons:
- The LLC structure can protect businesses from personal liability in most cases
- Profits and losses pass through personal income, which avoids the double taxation of corporate taxes
When forming an LLC in Wyoming, you will need to file your Articles of Organization with the Wyoming Secretary of State. But even though registering your business as an LLC does offer some protection, it might not always be enough. That’s why experts recommend drafting an Operating Agreement around the same time.
In this guide, we’ll go over the benefits of an Operating Agreement and how to draft one for your LLC in Wyoming.
What is a Wyoming LLC Operating Agreement?
The U.S. Small Business Administration (SBA) describes an Operating Agreement as a key document to outline the financial and functional during the initial stages of the LLC formation process. Essentially, an Operating Agreement details the internal operations of a limited liability company. Once signed by all members of the LLC, the Operating Agreement becomes an official contract that binds members to the terms set forth in the document. Although it is not a legal requirement in Wyoming to have an Operating Agreement, it’s strongly encouraged by the SBA.
Operating Agreements answer important questions:
- Which members are expected to perform which tasks?
- Who are the members of the LLC?
- Who has the right to vote?
- How will profits be divided?
- What happens if a member wants to sell their share of the LLC?
- Under which circumstances can shares of the LLC be sold?
Why do I need an LLC Operating Agreement in Wyoming?
Since it’s not required by law in Wyoming, you might be tempted to bypass drafting an Operating Agreement. However tempting it might be, it shouldn’t be overlooked because it is an important document for your LLC. Luckily, it can be quickly completed by using a template that was created by experts in the field.
Drafting an Operating Agreement has many benefits, which include:
- Extra protection: By drafting an Operating Agreement for your LLC, you are further legitimizing your business as a separate entity from yourself. In the event of any legal trouble, you can ensure you have more asset protection outlined in your Operating Agreement.
- Legitimize business: Add legitimacy to your LLC by drafting an Operating Agreement. In doing so, your LLC will appear more put together and could help if you are looking for potential investors or partners.
- Enables banking: By creating an Operating Agreement, you can present the bank additional paperwork that proves the validity of your business. In turn, this will help if you are applying for a business bank account.
- Operational flexibility: LLCs that draft an Operating Agreement can decide how profits and ownership are structured.
- Avoid disagreements: Drafting an Operating Agreement adds structure and a plan for specific situations. Because of this, it’s important that LLCs draft an Operating Agreement to address some of those situations so that members avoid arguments and misunderstandings.
What do I include in my Wyoming LLC Operating Agreement?
Creating an Operating Agreement in Wyoming is a great way to add additional protection to your LLC. It goes beyond the standard expectations and helps ensure the protection of your assets and the internal structure of your business. Ensure that you and your business are protected by using an Operating Agreement template that was developed by industry experts.
The SBA recommends that the Operating Agreement outlines:
- The percentage of members’ ownership or ownership interest
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and losses
- Holding meetings
- Buyout and buy-sell rules (procedures for transferring interests or in the event of a death)
In Wyoming, although it is not required to draft an Operating Agreement, members of an LLC are still subject to general guidelines. In the following sections, we’ll touch on important topics from Chapter 29 of the Wyoming Limited Liability Company Act.
Items to include in your Wyoming Operating Agreement:
- Management Structure
- Withdrawal of Members and Return of Members’ Contribution to Capital
- Sharing of Profits and Losses
- Transferability of Interests
1. Management Structure
An Operating Agreement should outline management of the company. An LLC can note in the Operating Agreement that they would like management to be handled by a manager, who is elected by the members of the LLC. The manager will hold office and complete the responsibilities set by members of the LLC.
It’s important that every LLC clearly outline how managers are elected if they choose this structure. In addition, it’s advisable for members of an LLC to create a comprehensive Operating Agreement so that everyone knows the duties of the members and managers and how managers can be elected and how long they have in office. This will specify everyone’s membership interest.
2. Withdrawal of Members and Return of Members’ Capital Contributions
According to Chapter 29 of the Wyoming Limited Liability Act, members can only withdraw from an LLC if it complies with the terms and conditions set in the Operating Agreement. For this reason, it’s critical to detail the specific terms and conditions so that everyone is well-aware of the process.
If there were no terms set in the Operating Agreement, a member could only withdraw if all members of the LLC give their approval. It’s important to ensure that all members of the LLC are aware of this law. This rule could potentially keep members of the LLC together, even if they wanted to move on from the venture.
LLCs should clearly outline what specific events can trigger a dissolution in their Operating Agreement. In some cases, an LLC might choose to dissolve if members violate certain terms. This helps ensure that everyone is on the same page and that members comply with the rules set in the Operating Agreement.
4. Sharing of Profits and Losses
LLCs in Wyoming can divide and allocate profits and losses among members based on the rules set forth in the Operating Agreement. If the Operating Agreement does not have specific rules for distribution, profits and losses will be distributed based on the value of the members’ contributions.
Because of the last rule, members should clearly outline guidelines for sharing profits and losses. This is because one member may have initially contributed 90% of the capital but never managed the LLC, while the other member may have only contributed 10% but managed the LLC. In the beginning, they may have gone in as equal business partners, but when they leave, they may not be treated as such.
5. Transferability of Interests
Transferable interests in an LLC can only be transferred if it was stated in the Operating Agreement. If the Operating Agreement does not address transferability, company interest can be made without the consent of all members. That being said, if all members sign off on the transfer of company interest, it can still be transferred.
Get Help Creating Your LLC Operating Agreement
Luckily, creating an Operating Agreement isn’t as difficult as you may think. By following an existing template, you can quickly secure your personal assets and prepare your LLC for success.
Even though it might be easy to bypass the Operating Agreement since Wyoming does not require LLCs to have one, your company could be missing out on additional protection and advantages. Starting an LLC may require a lot of filing and drafting documents, but you can avoid administrative headaches by using ZenBusiness services to help you start, run, and grow your business.
Updating and Revising Your Wyoming LLC Operating Agreement
Your Operating Agreement should be stored with other important business documents and revisited annually to make sure that all of the regulations are accurate for your LLC. You should also revisit your Operating Agreement if other aspects of your LLC change, such as your registered agent and/or registered office, business name, or adding new members. You can also revisit it when you’re preparing your annual report. Some of this information will also need to be reflected in your updated Articles of Organization, which you will submit as an amendment.
Your Operating Agreement should have a dedicated section about how and when amendments can be made.
Since it cannot be filed in Wyoming, members can just sign the updated or revised agreement to make it an official, binding contract. Because of this process, modifying an Operating Agreement in Wyoming can be done easily, especially if you elect to use a template.
Using a template to modify your Operating Agreement ensures that all of the important topics are touched in the agreement. Furthermore, it makes sure that your LLC’s rules and regulations comply with Wyoming state laws. For a low price, you can secure an expertly crafted Operating Agreement that can be adapted to fit the needs of your LLC.
- Is an LLC Operating Agreement required in Wyoming?
No. An Operating Agreement is not required in Wyoming. Although it is not required, the SBA recommends that all LLCs in every state have a clear and detailed Operating Agreement.
- Where do I get an LLC Operating Agreement in Wyoming?
There is no standard Operating Agreement in Wyoming. Standard rules and regulations can be found here and can help you if you use a template to complete your Operating Agreement.
- Does a single-member LLC need an Operating Agreement in Wyoming?
All LLCs, whether they are single-member or multi-member LLCs, should have an Operating Agreement, even though it is not required in Wyoming. Having an Operating Agreement as a single-member LLC adds legitimacy to your business, further separating it as a business entity, which helps with legal and tax issues. In addition, an Operating Agreement can help a single-member LLC set up a business bank account.
- Do I file an LLC Operating Agreement with Wyoming?
No, you do not file an Operating Agreement with Wyoming. Instead, you should store your Operating Agreement with other core business records.
- Can I write my own LLC Operating Agreement in Wyoming?
Yes. Technically you can write your own Operating Agreement in Wyoming. It’s recommended that you follow a template to ensure that every important topic is covered and that you are compliant with Wyoming rules and regulations.
- Do I need a lawyer for an LLC Operating Agreement in Wyoming?
No. You do not need a lawyer for an Operating Agreement in Wyoming. However, you may want to consult a legal professional before having members sign to ensure all relevant points are covered.