Missouri LLC Operating Agreements 101
The Missouri LLC operating agreement is a document simulating its own constitution, standing atop the hierarchy of laws governing a Missouri LLC. It addresses the important issues that the LLC will deal with, including: establishing the various rights and obligations of its members and managers, including the financial, managerial, and exit rules of the LLC; contractually binding the members to a particular method of doing something so as to restrict exit if things go bad; and protecting the interests of the LLC in general. The Missouri LLC operating agreement is an often-required part of the process of forming an LLC. Well-written Missouri LLC operating agreements can often mean the difference between establishing a lasting company and an unwanted dissolution. LLCs which have never had the legal work done to institute an operating agreement often find themselves in considerable jeopardy , especially in a potential dispute with other members or the Missouri Secretary of State.
Lack of an operating agreement leaves your LLC vulnerable. Laws specific to Missouri and rules of procedure for the Missouri Secretary of State may not allow an LLC lacking an operating agreement to do such important things as bring a lawsuit to enforce a contract. For this reason, it is important to have the Missouri LLC operating agreement in place as soon as possible. The most common reasons to develop a Missouri LLC operating agreement, based on the desires, requirements, and legal protections of your business, are as follows:
In Missouri, all assistance regarding Missouri LLC operating agreements should be sought from a qualified Missouri LLC attorney. A Missouri LLC attorney will be well-versed in LLC law and in the content that goes into a Missouri LLC operating agreement, including a variety of pre-printed Missouri LLC operating agreement forms. A Missouri LLC attorney will be able to help you decide what kind of pre-printed Missouri LLC operating agreement you want to use and what you want to modify in it, if anything.
What are the Essential Parts of a Missouri LLC Operating Agreement?
A Missouri LLC operating agreement contains the structure and rules that govern the company. Active LLCs generally use such agreements to provide for continuity of operations over time. However, the operating agreement is not filed with the Secretary of State. A business’s operating agreement must mirror state law; however, it can vary depending on the members’ preferences. The operating agreement sets forth the management structure of the company, the roles of members, and how profits and losses are to be calculated and distributed. According to Missouri law, the LLC operating agreement also covers the contribution of members, distributions to members, transfer of a member’s interest, and dissolution of the company.
Management Structure
The Missouri Limited Liability Company Act (the "Act") permits members of Missouri LLCs to choose the management structure of their companies. The Act offers the option of management by members, management by managers, or a hybrid approach. Members of a manager-managed LLC appoint individuals that manage the day-to-day operations of the LLC, which are called "managers." Managers do not have to be members of the LLC. They can be individuals, corporations, or other entities. Consequently, an LLC can, on occasion, be managed solely by non-members who are designated as managers in the operating agreement.
In contrast, when the member-managed structure is chosen, it is presumed that all members are involved in management. Every member can bind the LLC, contractually or otherwise. The purpose of including a member-management provision in the operating agreement is to avoid issues that arise when management is left to the default provisions of the Act. This provision is used to decide on several important matters, including whether:
Roles of Members
The roles of members and managers of a Missouri LLC are usually specifically addressed in the operating agreement. Each individual may have specific rights and responsibilities in addition to the management designation.
Profit and Loss Distribution
The operating agreement governs how distribution is allocated to the members. While the default provisions of the Act provide that each member is entitled to distributions based on the percentages of capital contributions to the LLC, the members may decide how to allocate such distributions. In some cases, the distribution provisions do not reflect capital accounts. For example, distribution allocations could be based on voting rights rather than capital accounts.
This article merely highlights the importance of including key foundational elements in the operating agreements of Missouri LLCs. Ultimately, whether a Missouri LLC elects to retain the statutory default rules contained in the Act or provides supplemental detail in its operating agreement is a strategic business decision.
Minimum Legal Requirements for Missouri LLC Operating Agreements
The Missouri LLC Operating Agreement is the cornerstone document for your business. However, the provisions and requirements differ from state to state. Within this section of the Missouri LLC operating agreement, we will address some of these issues which apply only in Missouri.
Missouri expressly allows for limited liability entity managers and members who do do not participate, directly or indirectly, in the control of the company.
In Missouri, the members can elect to have or not have an operating agreement. Then, if they do wish to have one, they can opt to have a written or oral agreement. This was a change in the law in 1983. Historically, in Missouri, the actions of the LLC members were governed by the Model Act.
Here is a list of some Missouri statutory provisions incorporated in any Missouri operating agreement (regardless of whether or not it is detailed in the operating agreement):
- Unless otherwise provided within the articles, the members shall elect a manager or managers. A manager or an agent of the manager may be a member.
- Any management of an LLC is presumed to be non-managerial.
- A member’s capital contribution and membership interests are not issued in exchange for services.
- A limitation or elimination of personal liability of a member or manager to the LLC or any other person for a breach of fiduciary duty is not allowed.
- Members and managers are entitled to salary.
- Distributions are to be made in accordance with member contributions.
- An interest in management does not entitle the member to account for, inspect, or copy organization books or records.
- A member does not have pre-emptive rights to acquire an unissued interest.
- Actions may be taken without a meeting if every member entitled to vote consents in writing, or sends an email stating the consent. A unanimous consent must specify the action to be taken, which may be by electronic transmission.
- A member, manager, or employee may be held liable to the company and to any other member for damages as a result of an unlawful distribution.
This is a Sample LLC Operating Agreement – Missouri Specific
The following is an example LLC operating agreement for the state of Missouri. Of course, every operating agreement will be different depending on the needs of the LLC members and the provisions that you decide to include in your Missouri LLC operating agreement. But this sample operating agreement should give you a good idea of what a Missouri LLC operating agreement looks like and what provisions it will ordinarily contain.
SAMPLE LLC OPERATING AGREEMENT
This Operating Agreement ("Agreement") is made and entered into as of _________________, 20___ by and among _______________ (referred to collectively as the "Members" or "Members") and _____________________________, a ________________ corporation, organized pursuant to the laws of the State of Missouri (the "Company").
ARTICLE I
PURPOSE
Section 1.01 Purposes. The purposes for which the Company has been formed are: to engage in any lawful activities as may be permitted by law.
Section 1.02 Principal Office. The principal office of the Company is _________________________________.
ARTICLE II
ORGANIZATION
Section 2.01 Formation of Company. The Company was formed as a limited liability company pursuant to the Act.
Section 2.02 Registered Office. The registered office of the Company in the State of Missouri and the name of its registered agent in charge thereof shall be as set forth in the Articles of Organization filed with the Secretary of State, which Articles of Organization shall be attached hereto as Exhibit A.
Section 2.03 Term. The term of the Company commenced upon the filing of its Articles of Organization and shall continue until dissolved as hereinafter provided.
Section 2.04 Other Businesses. The members may conduct such other or additional businesses as the directors may from time to time determine and as allowable under the laws of the State of Missouri. Pursuant to Article XIV, any such business shall not affect the Members’ interests in the Company.
ARTICLE III
MANAGEMENT
Section 3.01 Management. This is a manager-managed LLC. In accordance with Article VIII of this Agreement, __________________ and __________________ shall serve as the only managers of the LLC and hereinafter the members of the Board of Managers shall be referred to as the "Board."
Section 3.02 Powers of Managers. Without limiting the powers of the Board as set forth in this Article, the management of the business and affairs of the Company shall include the following powers:
Section 3.02 Reimbursement of Expenses. The Company shall reimburse the Board for actual out-of-pocket expenses incurred in the operation of the Company such as travel expenses to and from meetings, lodging, per diem, and other similar expenses incurred in the day-to-day operations of the Company.
Section 3.03 Account Signatures. The signatures of any two (2) directors shall be required to authorize the following matters:
ARTICLE IV
MEMBERS INTERESTS
Section 4.01 Uniqueness of Interest. No Member’s Interest may be assigned or encumbered, in whole or in part. Further, the Members shall not have any right to withdraw capital contributions or withdraw from the Company.
Section 4.02 Certificates. The Members shall not receive any certificates evidencing ownership of their Membership Interests.
Section 4.03 Transfers. No Member of the Company can sell, assign, or transfer its Membership interest or the rights associated with its Membership Interest, to any persons or entities to any person or entity without the prior written consent of the other Members.
ARTICLE V
DISTRIBUTIONS
Section 5.01 Distributions to Members. All distributions of the Company made to the Members shall be made in equal amounts to each Member unless otherwise determined by the Board at any time prior to the time of distribution.
Section 5.02 Tax Distributions. The Board agrees to make tax distributions as may be necessary (each to the extent practicable) so as to avoid the Company having an excise tax imposed on its taxable income under Section 1901 of the Internal Revenue Code of 1986, or any amendments thereto, or under any federal substitute for such tax ("Tax Distributions"). The amount of such Tax Distributions shall be determined by the Board in its reasonable discretion and after consultation with legal counsel and shall be allocated among the Members pro rata based upon their respective ownership Interests.
ARTICLE VI
FISCAL MATTERS
Section 6.01 Fiscal Year. The fiscal year of the Company shall be the calendar year.
Section 6.02 Bank Accounts. The Company shall maintain its funds in its name, and shall not commingle such funds with the funds of any Member(s). All funds of the Company shall be deposited in the Company’s name in such bank or banks as the Board shall from time to time designate.
ARTICLE VII
DISSOLUTION
Section 7.01 Events of Dissolution. The Company shall be dissolved upon the happening of any of the following events: Upon the dissolution of the Company, the Board shall proceed to wind up the affairs of the Company.
Section 7.02 Distributions Upon Dissolution. Upon dissolution of the Company, the property and assets remaining after the payment or provision for payment of all debts and liabilities of the Company, shall be distributed to the Members in proportion to their Membership Interests.
Here’s the Template for Your Missouri LLC Operating Agreement
Although the previous section provided a useful starting point for a Missouri LLC operating agreement, business owners can tailor the following parts of the operating agreement to suit the specific needs of the company: voting rules; how membership interests will be issued; the process for selling a membership interest; arrangements for adding new partners; transferability of interest; how ownership changes will be addressed; types of ownership; and rules and regulations concerning the management of the company. The Missouri Revised Statutes states that all of these facets of an LLC should be addressed either in the articles of organization or the operating agreement.
Each of the areas outlined above can be customized to fit the needs of any business entity. For example, for voting rules, members may choose to address the following: what percentage of members must be present for a quorum, whether regular and special meetings will be held, what time and place such meetings will occur , the process by which members may call for an annual meeting, and the manner in which notice of the meetings should be delivered. Ownership interests can also be customized. Members may wish to issue only common interests or both preferred and common interests. And if preferred interests are to be issued, members may wish to differentiate between different types of preferred interests. For instance, the parties may wish to distinguish between interests that have liquidation preferences over proceeds derived from asset sales and interests that have priority over other interests in distributions of profits or other assets.
In light of the fact that Missouri law is very flexible, business owners should work with a skilled St. Louis business lawyer to ensure that their operating agreements encompass all requisite provisions. This will help provide long-term success for the company in existential matters like issuing interests and business-management.
Don’t Make these Common Mistakes in Missouri LLC Operating Agreements
One common mistake is not having an operating agreement at all. Even though Missouri law does not require LLCs to have one, it is highly recommended that you and any other member(s) create an operating agreement for your Missouri LLC. This ensures that there is a written record of how things will operate and what the ownership percentages are.
Another mistake is failing to clearly define who the members are, who owns what percentage and how much each member has contributed to the LLC. All of this information is useful in establishing the value of the business, distributing profits and notifying members if there is ever a buy-out or transfer of ownership.
Many people also make the mistake of using the Missouri Secretary of State’s Articles of Organization form as their operating agreement. Although this form will work, it is always better to replace a blank slate with a document that reflects the terms you want your operating agreement to contain.
The Advantages of a Missouri LLC Operating Agreement
A Missouri limited liability company Operating Agreement provides a layer of legal protection to each member in the business. By establishing the rights and responsibilities of each member, the operating agreement acts as the "instruction manual" for the company. In most cases, a Missouri LLC does not have to abide by the terms of Missouri LLC statutes (Chapters 347 and 348), unless the company has specifically stated those terms in the Operating Agreement. This flexibility is one of the reasons why having an Operating Agreement is essential to running a successful Missouri LLC.
Having an Operating Agreement that explains in detail day-to-day operations in the business can prevent many disputes between members. When members are able to refer to specific language in the Operating Agreement that outlines their respective duties, misunderstandings between members can be avoided.
If a member should ultimately leave the business or if the Missouri LLC should be dissolved, the terms of the Operating Agreement will help in making those transitions smoother. For example, if a member’s family should want to buy her ownership share from the LLC, it will typically be governed by a provision in the Operating Agreement addressing the subject. Certain provisions in the Operating Agreement will also address what happens to a member’s share of the business if that member passes away.
Tips for Writing a Great Missouri LLC Operating Agreement
As detailed in this article, Missouri LLC members have the ability to craft a wide array of terms to govern their relationships to one another and the operation of the business venture. However, as with any legal document, the words matter and will ultimately control how the LLC is governed. An ambiguous or poorly drafted term may leave the LLC vulnerable to conflict or litigation. In this concluding section, we will offer some general tips on drafting an effective Missouri LLC operating agreement.
A Missouri LLC operating agreement is not the same as a sole proprietorship or a general partnership. On the contrary, an LLC operating agreement is subject to state law and should be drafted with care. Members should avoid the temptation to use a generic template the same template that everyone else uses. Rather , the operating agreement, while having some standard provisions, should be customized to the unique situation of each particular LLC.
Remember, the operating agreement is a contract, not a corporate newsletter where language can be forgotten. The terms and language chosen in the operating agreement will ultimately control the relationship of the members to one another and the LLC. Therefore, ambiguous terms should always be avoided and a neutral party may need to draft some terms. Be sure to consult with a lawyer before finalizing the agreement.
By following the above tips, members can maximize the chances that their LLC operating agreement reflects their intent and serves the purposes of the LLC’s business venture.
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