A Maryland LLC Operating Agreement, to phrase it simply, is akin to a customized footprint for your LLC, ensuring a lucid infrastructure for its operations. Imagine us sharing a light-hearted coffee, and I depict it as your unique rules book, setting the standards for managing your business, which includes elements like allocation of ownership, protocols for decision-making and provisions for leadership succession.
Within this agreement, operating under Maryland's LLC policies, you'll commit to paper key essentials including the duties of members, the course of decision-making, and the techniques to resolve discord - constructing a reliable roadmap to avert possible communication hitches along the way.
Here are the different templates we offer for Maryland:
No, it's not legally required in Maryland under § 4A-402. Single-member LLCs need an operating agreement to preserve their corporate veil and to prove ownership. And multi-member LLCs need one to help provide operating guidance, determine voting rights and contributions.
Read on to learn more about Maryland operating agreements, including:
Here are some key components that are typically included in a Maryland LLC operating agreement:
Let's explore the standard inclusions, adding in some sample wording to make your task simpler.
You've named your brainchild (it's the title you bestowed when you filled and filed your LLC formation document with Maryland), but you also need to describe the purpose of your LLC. There's no need to pen an ultra-detailed blueprint. Keeping your statement broad keeps your options open, allowing you to embrace fresh opportunities without having to refile.
OPERATING AGREEMENT of [COMPANY NAME]
This operating agreement is adopted as of [Date] (the “Effective Date”), by [Member’s Name] , an individual and the sole member (the “Member”) of [Company Name] (the “Company”).
The Member hereby adopts this agreement as the operating agreement of the Company, which agreement sets forth the entire understanding of the Member regarding its subject matter and supersedes all prior understandings and agreements regarding its subject matter.
The purpose of the Company is [ Company Purpose] , and the conduct of other activities as may be necessary or appropriate to promote the stated purposes, and to engage in any other lawful business or activity for which a limited liability company may be organized under the Act.
This chunk is where you denote if your LLC will be managed by either a member or a manager. It also highlights the rights and responsibilities of each member, covering aspects such as capital contributions, voting rights, and the chain of command. Even as the only link in the chain (as a single-member LLC), outlining this section is a critical step.
The business and affairs of the Company will be managed by the Member. The vote, action, decision, or consent of the Member will constitute a valid decision of the Member and the Company. The Member may appoint one or more officers (including the Member, if the Member is an individual) who will have such powers and authority to act on behalf of the Company granted to them by the Member.
The business and affairs of the Company will be managed by the manager of the Company and any successor thereto appointed by the Member, which manager may also be referred to as the Company’s president (the “Manager”). The initial Manager will be [Manager Name] , who will serve until the Manager’s death, removal by the Member (for any reason or no reason), or resignation. The Manager will have the right and authority to manage the affairs of the Company and make decisions and take action with respect thereto without further approval or consent of any kind by the Member. Except as otherwise required by this agreement and in lieu of any limitations set forth in [State Name] ’s laws for limited liability companies (the “Act”), the Manager will be solely responsible for and is hereby authorized to manage and operate the business of the Company. Except to the extent that the authority of the Manager is expressly limited by the Member, the vote, action, decision, or consent of the Manager will constitute a valid decision of the Manager and the Company.
Think of the registered agent as your LLC's point guard, accepting and managing important documents on your company's behalf. Some LLC operating agreements might feature this, but you needn't unduly worry about its inclusion, as it's already part of the formation documents that you file with Maryland.
The Company’s registered agent in State is: Registered Agent Name , Address . The members may designate other registered agents or offices at any time in this state or, if necessary, in other states.
The "term of an LLC" is akin to the life span of your Limited Liability Company. It's the intended longevity of your LLC, as elaborated in your formation documents. A lot of entrepreneurs establish LLCs with the aim of letting them operate indefinitely, but you may also specify a finite period or an end date.
In several states, LLCs are "perpetual" by default, which means they can persist for as long as you wish. A majority of LLCs in Maryland prefer this tireless work ethic. And here's a sample clause:
The duration of the Company will be perpetual.
Capital contributions are essentially the financial resources, assets, or services that you inject into your LLC to jumpstart its operations. Consider this your initial financial plunge to set your business wheels in motion. For single-member LLCs, you are the one-stop resource for these contributions, letting you decide how much monetary or asset-based input you wish to commit to your enterprise.
Recording your capital contributions appropriately is vital. This not only maps out your business's financial framework but also delivers valuable data for tax considerations.
The Member’s capital contribution(s) to the capital of the Company for the Member’s membership interest in the Company will be reflected on the books and records of the Company.
The members have made or shall make the contributions of cash, property or services to the LLC as set forth on Exhibit A attached
The indemnification conditions of an LLC's Operating Agreement don the role of a safety blanket, shielding the company's members from particular costs linked to legal issues stemming from their duties towards the business. In essence, the LLC would bear the burden of any legal expenses or losses if a member finds themselves in a legal tangle linked to their business duties.
This protection must be clearly delineated in the agreement, including the exact circumstances under which the LLC would offer this safeguard, along with any exceptions. Typically, indemnification won't cover deliberate misconduct or gross negligence. Customizing these terms to fit your business's unique risks is a must to ensure ample coverage.
The Member, the Manager, the officers, and the organizer of the Company and their respective affiliates, stockholders, members, managers, directors, officers, partners, employees, agents, trustees, and representatives (individually, an “Indemnitee”) will be indemnified by the Company against any and all losses, claims, damages, liabilities, expenses (including legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits, or proceedings, civil, criminal, administrative, or investigative, in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of the Indemnitee’s status as any of the foregoing, which relates to or arises out of the Company or its assets, business, or affairs, if in each of the foregoing cases (A) the Indemnitee acted in good faith and in a manner the Indemnitee believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful, and (B) the Indemnitee’s conduct did not constitute gross negligence or willful or wanton misconduct. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, will not, of itself, create a presumption that the Indemnitee acted in a manner contrary to that specified in clause (A) or (B) above. Any indemnification under this section 5 will be made only out of the assets of the Company, and the Member will not have any personal liability on account thereof.
Your Maryland LLC can be taxed in four different manners: as a sole proprietorship, partnership, S corporation, or C corporation. The taxation method hinges on the number of LLC members and the tax status you select with the IRS.
Remember to include a clause on tax status in your LLC's operating agreement. These sections discuss your chosen tax status, the steps to alter it, and the handling of tax returns and allocations (if applicable). This valuable inclusion aids your LLC in planning for business finances, incorporating profits, losses, dividends, and taxes. The goal here is to provide a reliable, detailed plan for navigating any tax-related queries that crop up in your business.
The Company will be disregarded for federal and state income tax purposes. The admission of one or more additional members, however, will cause the Company to be recognized for tax purposes, and to be taxed, as a partnership.
The Member acknowledges that the Company has elected to be taxed as a corporation for federal tax purposes pursuant to the regulations currently in effect under Section 7701 of the Code, and to be taxed as an electing small business corporation under the provisions of Subchapter S of the Code. Notwithstanding such tax treatment, the Member acknowledges and agrees that the Company will be a limited liability company, for state law purposes, under the provisions of the Act, the Articles of Organization, and this operating agreement.
The Member acknowledges that the Company has filed or will timely file a Form 2553 (Election by a Small Business Corporation) with the Internal Revenue Service and that the election made pursuant to the filing is or will be in force and effect covering all periods since the date of this operating agreement. Except as otherwise provided in this operating agreement, during the term of this operating agreement and the continuation of the Company’s “S” corporation election under Section 1362 of the Internal Revenue Code, no Member shall take any action which would cause the revocation or termination of the Company’s “S” election (under Section 1362(a) of the Internal Revenue Code) and any attempt to take such an action will be null and void and without effect. Without limiting the foregoing, and notwithstanding any provision hereof to the contrary, any transfer or attempt to transfer any membership interest to any of the following will be null, void, and without effect:
(a) a person whose ownership thereof would cause the Company to have a number of Members and assignees of membership interests (shareholders of an “S” corporation) greater than the number permitted by Section 1361(b)(1)(A) of the Internal Revenue Code;
(b) an individual who is not a United States citizen or resident;
(c) a trust (or the trustee thereof) which fails to satisfy the requirements of Section 1361(c)(2)(A) or 1361(d) of the Internal Revenue Code;
(d) a corporation; and
(e)any other entity whose ownership would cause the termination or revocation of the Company’s tax status as an “S” corporation.
The profit and loss distribution clause simply states when your LLC will distribute the earnings. For a single-member LLC, it's not a big deal. However, if you're running a multi-member LLC, you need to clearly specify when, the prerequisites, and the method of distribution.
As the sole member of the LLC, the Member is entitled to all profits of the LLC and is responsible for all its losses. Profits and losses shall be determined annually and will be allocated to the Member's capital account. Distributions of cash or other assets will be made at such times and in such amounts as deemed appropriate by the Member.
What if you need to alter a term in your LLC? No worries, just adhere to your LLC amendment clause. For single-member LLCs, the process is a cakewalk. For multi-member LLCs, it's crucial to carefully consider the prerequisites and voting percentage when amending the operating agreement.
This agreement and the articles of organization of the Company may not be altered, modified, or changed, and no provision of this agreement may be waived, except by an amendment or waiver, as applicable, approved by the Member.
By design, LLCs typically don't need to follow corporate formalities like corporations. Still, failure to follow these formalities sometimes could jeopardize maintaining your corporate veil. Therefore, Legal GPS suggest including a waiver of all formalities in your operating agreement.
The failure of the Company or the Member to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this operating agreement or the laws in the state in which the Company is which govern limited liability companies will not be grounds for imposing personal liability on the Member for liabilities of the Company.
This includes your plan of action if things don't go as planned. It provides guidance on how to dissolve your LLC and designates who will oversee the LLC in the unfortunate event of your demise.
Upon the occurrence of any event which terminates the continued membership of the Member in the Company, the Company will not be dissolved, and the business of the Company will continue. The Member hereby specifically consents to such continuation of the business of the Company upon any such event. The Member’s legal representative, assignee, or successor will automatically become an assignee of the Member’s interest and will automatically become a substitute Member in place of the withdrawn Member.
The effective date of your operating agreement is when it comes to life. To put it differently, it's the day the agreement becomes operational.
Nope! Contrary to your Articles of Organization or Certificate of Formation, your operating agreement is for internal record-keeping. Just keep a signed copy handy when needed.
It's the vision of every small business owner to expand their business beyond what they can single-handedly manage. If you're fortunate to find yourself in this position and ready to welcome another member to your LLC, you'll need to review and adjust the above paperwork to align with the agreement between yourself and the new partner. You'll likely need to draft a new agreement because a multi-member operating agreement varies greatly from a single-member one.
