An operating agreement is an important legal document for every limited liability company (LLC). This article provides a brief overview of some of the most common provisions found in an operating agreement. If you are looking for additional information about how to draft a good operating agreement, we recommend reading our previous blog post: “Maryland LLC Operating Agreement.”
Our operating agreement includes many standard terms and conditions, plus other items specific for your needs. We offer a free consultations if needed.
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What Is a Maryland LLC Operating Agreement?
An operating agreement is a legal document used to set up an LLC. This entity is used to protect owners from personal liability and .0i ko+jensure that creditors cannot reach the assets of the business. Unlike a partnership, where each partner owns a percentage of the profits and losses, an LLC is owned entirely by one member. Members can sell their shares to another person or group of people without having to go through the dissolution process.
Maryland law requires every Maryland LLC to have an operating agreement. If you don’t have one already, we’ve got you covered. Check out our free sample operating agreements here.
Create a Free Custom Operating Agreement
An operating agreement is one of those things you never really think about until it’s too late. You know what I mean—you’re working with someone on a project, and they say something like, “Oh, we don’t want to use an LLC because we’re afraid we’ll run into problems down the road.” Or maybe they tell you that they already have an LLC, and they just want to make sure everyone knows they are protected.
Or maybe they say, “We’ve got a great lawyer, but he charges $500 per hour!”
The truth is, most people don’t even realize how important an operating agreement is. But once you do, you’ll wonder why you didn’t take advantage of this tool sooner.
In fact, there’s a reason why we call it a “free” operating agreement. We offer a completely customizable template that you can download and customize yourself. And unlike some templates out there, ours doesn’t require you to pay anything up front. In fact, we’re so confident that you’ll find our template useful, we’re willing to bet that you won’t spend $1,000+ on legal fees.
What Is The Benefits of Having a Maryland LLC Operating Agreement?
An operating agreement will help you protect your limited liability status and ensure that everyone understands what each member does within the company.
An operating agreement will prevent misunderstandings between members of your Maryland LLC. If you are part of a multi-member LLC, it is essential to understand how decisions are made and who makes those decisions. This document helps clarify how things work and prevents confusion.
A multimember LLC must have an operating agreement because it requires some form of organization. You cannot operate without rules and procedures. In addition, operating agreements provide protection for owners in case something goes wrong.
If you are raising money through equity financing, having an operating agreement will help prevent disagreements about ownership rights and responsibilities. Without one, there could be problems down the road.
Finally, having an operating agreement protects your limited liability status. When you file articles of organization, you become personally liable for the debts and obligations of the company. However, if you sign an operating agreement, you are protected.
Steps in Creating Your Maryland LLC Operating Agreement
1. Add a New Member
You may decide to add a new member to your business. If you do, you will need to update your operating agreement to reflect the addition. You cannot simply add a new member without updating the operating agreement.
2. Lose a Member
Your business could suffer financially if one of its members leaves. In such cases, you may need to amend your operating agreement to adjust ownership percentages. For example, if your business had three owners, and now only two remain, you may need to reduce the owner’s percentage.
3. Change Your Business Structure
There are many different types of businesses, and each requires a different structure. A sole proprietorship is similar to having a single person own your business. As the name suggests, a partnership is owned equally by multiple people. Corporations are owned by shareholders, while limited liability companies are owned by members. Each form of business organization requires a unique operating agreement.to Form an LLC in Maryland (5 steps)
To form an LLC in Maryland requires five simple steps. First, you will need to determine whether you are forming a single member LLC or multiple member LLC. Next, you will need to decide what type of entity you want to form. Then, you will need to choose a name for your LLC. Thirdly, you will need to complete the paperwork required to set up your LLC. Fourthly, you will need a federal tax ID number. Finally, you will need to pay the $100 filing fee. If you are interested in learning how to form an LLC in Maryland please continue reading our article.1 – Nominate a Registered Agent
A registered agent is someone who represents a corporation in legal matters. This includes filing documents with state agencies like registering a trademark, opening a bank account, etc. In some states, it is required that you register an agent. If you are a small business owner, it is important to understand what role a registered agent plays in your business life.
The registered agent must be an Individual or Company that Resides Within the State of Maryland.
A Corporate Registered Agent Can Be a Person or Entity that Is Incorporated Under the Laws of Any Jurisdiction, Including Foreign Jurisdictions.2 – Entity Type
The entity type you choose determines what information must be submitted to the Secretary of State’s office. You may choose one of four types: Domestic Limited Liability Company (LLC), Foreign Limited Liability Company (FLLC), International Business Corporation (IBC), or Partnership. Each has different requirements. For example, FLLCs are required to submit Form SS-4, while IBCs do not.
You may choose either a domestic or foreign LLC. If you select the former, you must file Form SS-4 with the Secretary of State‘s office. Otherwise, you must file Form FS-1 with the IRS.
The next step is to file your Articles of Organization with the Secretary of State of Missouri. This filing costs $100.00 and it must be done within 30 days of forming your LLC. If you are filing under the name of a corporation, you will pay an additional $50.00 filing fee. Once you complete the form, print out the completed form and mail it along with payment to the address listed on the form.4 – Operating Agreement
An operating agreement is a contract that spells out how the business will operate. This type of document helps ensure that everyone understands what each person’s responsibilities are within the organization.
The most common types of operating agreements include:
• Articles of Organization
• Management Agreements
• Shareholders Agreements
• Subscription Agreements5 – Employer Identification Number (EIN)
For most businesses, applying for a federal tax ID is required before hiring employees, opening a bank account, purchasing inventory, or performing any other type transactions. This process is called obtaining an employer identification number. In fact, it is one of the final steps in completing a business formation.
The Internal Revenue Service issues an employer identification number to companies that want to pay payroll taxes under the company’s name. To obtain an EIN, you must complete Form SS-4, Application for Employer Identification Number, and submit it to the IRS along with $25. You are responsible for paying any fees associated with filing the form.
Once you receive the EIN, you use it to fill out Form W-9, Request for Taxpayer Identification Number and Certification, to request a taxpayer identification number from the Social Security Administration. Your records will reflect both numbers.
An operating agreement is a contract that governs the operations of a limited liability company (LLC). This type of contract is typically used to govern the
day-to-day activities of the LLC. In addition to defining the responsibilities of each member, it usually contains provisions regarding compensation, dissolution, and succession.
A member who wants to sell her/his interest must obtain consent from the other members. If the members disagree, the matter goes to court, where a judge decides whether the sale is valid.
Members cannot transfer their interests without prior consent from the other members; however, they are free to transfer their interests to another person.
Frequently Asked Questions
Is an Operating Agreement REQUIRED in Maryland?
LLCs in Maryland are not required by law to implement an operational agreement.
Does Maryland require LLC operating agreement?
No. However, if you choose to have an operating agreement drafted, you can do so at no cost.
How much does it cost to draft an operating agreement?
It depends on the complexity of the document. A basic operating agreement should only take about 15 minutes to prepare.
What happens if we don’t have an operating agreement?
If you don’t have a written operating agreement, your LLC may be subject to penalties and fines. The state also has the right to dissolve your LLC.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.