Georgia LLC Operating Agreement + Free Template
When conducting business as a Georgia LLC, you need a solid operating agreement that benefits the owners or members, as it separates the business from its members and safeguards its assets.
To help you understand how to draft a sound operating agreement, we joined forces with our licensed LLC lawyers, who have over two decades of experience in the LLC sector.
We spent the last four weeks reviewing different state requirements for operating agreements in Georgia.
Here's a detailed guide on the components of an operating agreement and its benefits.
Consider approaching an experienced Georgia LLC service for legal assistance in crafting an operating agreement that includes all the critical clauses.
- In Georgia, having an LLC operating agreement is not a mandatory requirement; however, there are significant benefits to creating one.
- A Georgia LLC operating agreement is a legal document that serves to solidify verbal commitments, customize business operations, and provide a clear framework for internal governance.
- As reported by the Georgia Secretary of State, Georgia experienced a significant uptick in new business formations as of March 1, 2023, with 51,260 filings, marking an increase of 1,420 from the previous year.
- In the Practice Benefits LLC v. Clark case, the Georgia Court of Appeals' ruling that LLCs are obligated to their operating agreements without formal signing, a decision I find crucial, influenced a conflict over voting rights and distributions, highlighting the operating agreement's vital role in dispute management.
Georgia Operating Agreement Free Template
Disclaimer: This template is just for information. Please talk to a lawyer before using it, as we're not responsible for how it works for you.
Also, read our article about the differences between member-managed and manager-managed LLCs before you download the template.
What Is a Georgia LLC Operating Agreement?
A Georgia LLC operating agreement lays out the guidelines and organizational framework for the LLC and can assist in resolving any problems that develop throughout corporate operations.
As of March 1, 2023, Georgia witnessed the filing of 51,260 new business formations, representing an increase of 1,420 filings over the same period in 2022, according to the Georgia Secretary of State .
It also serves as a helpful reference for members during the duration of the business.
Operating agreements are not submitted to the Georgia Secretary of State; instead, they are stored with other important business records for future reference and to ensure that the firm is managed or operated in a way that meets the requirements of each member.
Writing Operating Agreement Do's and Don'ts
- Customize to Your Business Needs: Ensure that the agreement is tailored to the specific needs of your LLC. Include details about the management structure, whether it is member-managed or manager-managed.
- Comply with Georgia State Laws: Ensure your agreement adheres to Georgia state regulations regarding LLCs.
- Update the Agreement: Update the operating agreement as your LLC grows or undergoes changes.
- Consider Future Growth and Adaptation: While drafting, think about potential future changes in your business and how the agreement can accommodate growth, restructuring, or changes in the market.
- Don’t Use Generic Templates Blindly: Avoid using a one-size-fits-all template without customization. It might not cover specific aspects of your LLC’s operations or comply with Georgia laws.
- Don’t Ignore Tax Implications: Be mindful of how the IRS views your LLC and the tax implications of your operating agreement decisions. Georgia LLC members face a state income tax and a 15.3% federal self-employment tax. By default, single-member LLCs are taxed as sole proprietors, while multi-member LLCs are taxed as partnerships .
- Don’t Skip Legal Advice: Even if you draft the agreement yourself, have it reviewed by a legal professional familiar with Georgia business laws to ensure compliance and protect your interests.
- Don’t Neglect Confidentiality and Non-Compete Clauses: If relevant, include provisions to protect your business’s confidential information and to prevent members from becoming competitors.
- Don’t Make It Too Rigid: Avoid making the agreement excessively rigid. A degree of flexibility allows the LLC to adapt to unforeseen circumstances or changes in the business environment
What Should Be Covered in My Operating Agreement?
A Georgia LLC operating agreement should outline essential elements like the LLC's name, principal place of business, ownership details, etc.
Here are the detailed descriptions of each element:
1. LLC Name
To develop your written operating agreement, you must first gather the essential legal data about your limited liability company.
Some of the crucial details you'll require to start are listed below:
- The name of the business: Per Georgia state law, the Secretary of State must recognize your business name. The name must be identical to the one on the LLC Articles of Organization.
- Principal place of business: Entrepreneurs must list their primary location in Georgia, where the limited liability company executes its transactions.
- EIN: The IRS will provide you with a special nine-digit number known as the employer identification number (EIN) that you may use to pay federal taxes and file yearly reports .
- Registered agent office: Enter the registered office where your Georgia registered agent will receive business-related legal correspondence.
2. Ownership Details
The next step in creating an LLC operating agreement is to list the members who are a part of your LLC.
You must define their roles and positions explicitly and spell out your members' duties and their operating procedures.
Listing the members is strongly related to several administrative tasks, including membership interest, contribution, ownership quota, and voting rights.
You may also develop a general plan for your business strategy as you add participants to the agreement.
This will aid in your decision-making on daily operations and company practices. Additionally, this section of the contract enables you to legally shield members from personal liability.
3. Voting Rights and Decision-Making Powers
Voting plays a pivotal role in the decision-making process of an LLC.
While members' voting rights often correlate with their share of ownership, the operating agreement can modify this to ensure equal voting power among members.
In most cases, decisions are made at member meetings. Routine operational issues usually only require a majority vote for approval. However, for major decisions, such as mergers or changes to the operating agreement, a supermajority vote is often necessary, the specifics of which are outlined in the operating agreement.
4. Profit Distributions
This section clearly defines profit distribution protocols. Specify how and when profits are divided among members, typically based on ownership percentages or agreed-upon terms.
Include provisions for reinvesting profits versus direct payouts, ensuring alignment with members' expectations and the LLC's financial strategy.
Another element of your limited liability company that must be specified on the operating agreement is business management. A well-organized structure helps a multi-member firm make sound decisions.
There are two primary structures to pick from:
- Member-managed: A system run by its members ensures that every member actively participates in decision-making. Members can participate in daily LLC operations once voting privileges and member obligations are established.
- Manager-managed: A multi-member LLC managed by a manager is more typical of bigger limited liability companies when the members are not present for all aspects of daily operations or conversations. Instead, they will choose one or two managers to carry out this function.
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This section should outline the types of records to be maintained, such as financial statements, meeting minutes, and member contributions. Specify the format of these records (digital or physical) and the location where they will be stored.
Additionally, detail the procedures for member access to these records, ensuring they can review and audit them as needed. Include guidelines for record retention periods, complying with legal and tax requirements.
This section helps in organizing critical documents and plays a crucial role in legal and financial audits and in resolving potential disputes among members.
7. Member Change Process
Members of a multi-member LLC are subject to alter over time. For this reason, you need a dependable way to include or exclude participants from the operating agreement.
"Adding or removing members can affect the interests, distributions, ownership stakes, and voting privileges of current shareholders."
- Jon Morgan, Co-Editor & Co-Founder of Venture Smarter
Include details on what happens to the LLC's debts, members' obligations, laws and regulations, and how the surviving assets of the business should be distributed when setting the LLC dissolution terms.
8. Meeting Requirements
The operating agreement must detail how often member meetings occur, be it annually or more frequently. It should clearly outline the procedures for organizing both regular and special member meetings.
This includes the requirements for notifying members, establishing a quorum, and the methods used for voting during these meetings.
9. Operational Rules and Regulations
This section should define the standard operating procedures and guidelines governing the day-to-day management and administrative functions of the LLC.
It should cover aspects such as the guidelines for financial management and accounting practices, procedures for hiring and managing staff, and protocols for handling internal communications.
Additionally, it should address compliance with relevant laws and industry standards, ensuring that the LLC operates legally and ethically.
By clearly delineating these operational rules, the agreement helps to ensure smooth, efficient, and compliant business operations, reducing the potential for misunderstandings or conflicts among members.
Do I really need an LLC operating agreement in Georgia?
No, it's not a requirement; however, creating an LLC operating agreement in Georgia has its benefits, including the ability to enjoy limited liability status, escape LLC state laws, solidify verbal commitments, and customize your business.
Here's a detailed description of the importance of a Georgia LLC operating agreement:
- To Protect The Company's Limited Liability Status: The purpose of an LLC is to reduce individual members' exposure to corporate debt or other problems. You and the other members can be safeguarded in the case of bankruptcy or any monetary issue by having an operating agreement that expressly states this objective in writing.
- To Reinforce Company’s Legality: Obtain legal status for your LLC by submitting an operating agreement during formal commercial transactions. Banks or private investors could request to read your operating agreement before deciding whether to permit you to open an LLC business bank account or make an investment.
- To Solidify Verbal Agreements: An LLC agreement makes verbal commitments between members more clear. It is less likely that disagreements will occur if the LLC's terms are set down in writing, including how profits are allocated and who manages the company's organizational structure.
- To Avoid Default State Rules: Operating agreements safeguard your operating terms in the eyes of the state. Without an operating agreement, your LLC will operate under default Georgia business standards, which might cause issues later on or be unsuitable for your particular type of enterprise.
- To Facilitate Corporate Customization: A well-written operating agreement provides you with far more flexibility to modify your company's organizational structure than the basic guidelines provided by your state's business department. This enables you to modify the LLC to meet your members' requirements, business strategy, and even clientele.
Do I file an LLC Operating Agreement With the Georgia Secretary of State?
No, you do not file an LLC operating agreement with the Georgia Secretary of State because it's an internal document for a domestic or foreign limited liability company.
Does a Single-Member LLC Need an Operating Agreement in Georgia?
Yes, a single-member LLC needs an operating agreement in Georgia. A single-member LLC has only one person, and as the sole member, you must present your operating agreement to lenders and investors who want to back up your company financially.