Kentucky LLC Operating Agreement + Free Template

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: February 13, 2024
FACT CHECKED by Lou Viveros, Growth & Transition Advisor
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The creation and execution of an operating agreement is one of the most important phases in incorporating a limited liability company in Kentucky.

This legally binding document describes your LLC's members, managers, and operating processes.

To help you learn how to write a Kentucky LLC operating agreement, we worked with our licensed business advisors with over ten years of experience in the LLC sector.

After spending three weeks researching the Kentucky operating agreement components and requirements, we compiled this detailed guide for you.

Another option is to engage professional Kentucky LLC services for legal aid in creating an operating agreement with all the requisite clauses.

Quick Summary

  • In Kentucky, an LLC operating agreement is not mandated by law but is highly recommended.
  • A Kentucky LLC operating agreement is a legal document that outlines the LLC's ownership, management, and operational processes, offering benefits such as liability protection and customized management structures.
  • The remarkable increase in new business applications to 55,265 in 2023 and the projection of 3,626 new businesses in the coming year highlight Kentucky's booming entrepreneurial activity and the consequential need for comprehensive LLC operating agreements.
  • The Kentucky Supreme Court's ruling in the Racing Investment Fund 200 LLC case, emphasizing limited liability and the need for a written agreement for personal liability, underscores the importance of an operating agreement. In my view, it's a pivotal safeguard.


Kentucky Operating Agreement Free Template

Having a meeting about Kentucky LLC operating agreement

Disclaimer: This template is intended for informational use only. It is recommended to consult with a legal expert before employing it, as we do not hold responsibility for its suitability or accuracy.

We encourage you to review our detailed article on the distinct variations between member-managed and manager-managed LLCs before you proceed with downloading our template.

"An operating agreement needs to be crafted specifically for the business it pertains to, with careful attention to the company's goals and the interactions between its members."
- Jon Morgan, Co-Editor & Co-Founder of Venture Smarter

What Is a Kentucky LLC Operating Agreement?

A Kentucky LLC operating agreement is an internal business document that defines the LLC's ownership structure, management structure, capital contributions, operational processes, members' (owners') rights, duties, and liabilities.

The U.S. Chamber of Commerce reports that Kentucky's dynamic business environment was underscored by an impressive total of 55,265 new business applications in 2023, signaling a robust entrepreneurial spirit within the state [1].

Although the LLC legislation does not mandate the operating agreement, having one is important as it serves as the foundation of the LLC and establishes a system that directs the company so that day-to-day operations may be managed effectively.

By customizing the agreement, members can ensure the LLC functions according to their specific needs rather than default state laws, providing a personalized framework for the business's internal workings.

Writing Operating Agreement Do's and Don'ts

Writing LLC details

Do's:

  1. Ensure Flexibility: Allow provisions for amendments to the operating agreement. From experience, I can't stress enough the importance of flexibility in your operating agreement. When I worked with 'Derby Innovations LLC,' we had to amend our agreement several times to accommodate new investment opportunities. Making sure your agreement can adapt to changes is crucial for long-term success
  2. Consider Tax Implications: Work with a tax advisor to understand how the operating agreement's provisions affect the LLC's taxation and member tax obligations.
  3. Keep It Confidential: Treat the operating agreement as a confidential document to protect the sensitive information it contains about the LLC's operations and member agreements.
  4. Review and Update Regularly: Keep the operating agreement current with any changes in the business structure, membership, or Kentucky law.

Don'ts:

  1. Don't Use Generic Templates Blindly: Avoid using a one-size-fits-all template without adapting it to your LLC’s specific needs.
  2. Don't Violate State Laws: Ensure that none of the provisions in the operating agreement conflict with Kentucky state statutes governing LLCs.
  3. Don't Forget to Address Dissolution: Don't neglect to include a clear process for dissolving the LLC, which is essential for the orderly winding up of the business.
  4. Don't Fail to Document Changes: Don't forget to document any amendments properly and have all members acknowledge the changes to maintain the agreement's validity.

What Should Be Covered in My Operating Agreement?

Your Kentucky LLC Operating Agreement should comprehensively cover key elements, including the LLC's official name, ownership details, voting rights, etc.

Here is a detailed checklist of the components your operating agreement should encompass.

1. LLC Name

Establishing the meeting process with another professional

Ensure the operating agreement reflects the LLC's Articles of Organization, including its official name, registered office address, and mailing address.

State that it conforms to Kentucky's LLC laws and will be effective post-registration by the Kentucky Secretary of State.

2. Ownership Details

In your Kentucky operating agreement, the ownership section should detail each member's equity percentage, capital contributions, and the process for transferring ownership interests.

It specifies how the assets, liabilities, and earnings of an LLC are distributed among its members. This is frequently dependent on the Kentucky LLC structure.

For instance, a sole member makes up a single-member LLC. As a result, because the initial capital contribution belongs to a single member, their proportion would be 100%.

As for a multi-member LLC, all members are entitled to a certain ownership percentage.

3. Voting Rights and Decision-Making Powers

Reading the conditions for joining and leaving the LLC

Create guidelines for voting in your Kentucky LLC operating agreement.

The criteria for unanimous voting, owner voting rights, percentages, approval rates for proposed modifications, and who makes the ultimate decision in the event of a tie should all be specified.

Also, clarify how each member's voting power is calculated. Include details on how many owners must be present for a vote to be legitimate and whether votes are voidable if a quorum is absent

4. Profit Distributions

The profit distribution clause in a Kentucky LLC operating agreement should define how and when profits are shared among members, usually in proportion to ownership stakes.

It must clarify retention policies for reinvestment, detail the distribution schedule, and describe adjustments for member changes, all while adhering to Kentucky's legal guidelines to ensure equitable financial practices.

5. Management

Organizing documents for severability clause

Define the management structure of the limited liability company, whether it's a member-managed or manager-managed LLC.

A manager-managed LLC is one where one or more named individuals (managers) can bind the Kentucky LLC in agreements and contracts.

The LLC managers also manage the company and its daily activities. Members don't participate in managing the company's daily operations; they instead play a passive or investment role.

As for a member-managed LLC, each shareholder can bind the company to agreements and contracts. The LLC members also manage the company's daily operations.

With 'River Run Rafting LLC,' we opted for a member-managed approach, which empowered each member with a say in daily operations. This decision fostered a sense of ownership and accountability that has been instrumental to their success

6. Bookkeeping Procedures

The bookkeeping section of a Kentucky LLC operating agreement should establish the methods for maintaining financial records, including the frequency of updates and the responsible party.

It must specify the accounting method employed, detail record-keeping requirements, and outline the schedule for financial reporting to members, ensuring transparency and regulatory compliance.

7. Member Change Process

Pointing at limited liability protection document on laptop

A successful operating agreement lays the foundation for future business transactions.

This implies that when you draft a Kentucky LLC operating agreement, you must be ready for potential occurrences like the addition of new members or the departure of current members.

Be as specific as you can when describing what will happen to any ownership stake that a departing member holds and the benefits that a new member will get upon joining.

8. Meeting Requirements

The meeting requirements section of a Kentucky operating agreement should stipulate the frequency, location, and notification procedures for member meetings.

It must define quorum conditions, voting protocols, and the agenda-setting process. This ensures that all members are given the opportunity to participate in key decisions and that meetings are conducted in a manner that promotes order, efficiency, and compliance with state law.

9. Operational Rules and Regulations

Shaking hands for improved structure for governance and managemetn

It should outline the specific duties and powers of members and managers, including decision-making authorities and operational responsibilities. This section also needs to address conflict-of-interest policies and the delegation of tasks.

It's essential to define the limits of authority for various roles to prevent overreach and ensure smooth operations.

Do I really need an LLC operating agreement in Kentucky?

No, it's not required; however, there are several advantages to consider.

You need an LLC operating agreement in Kentucky to protect your personal and business assets from liability, have a better management structure, avoid state rules, and have easier dispute resolution.

Here are the detailed benefits of having a Kentucky operating agreement.

  • Restricted liability protection: Operating agreements are crucial for upholding personal liability protection by clearly separating the business from its owners and safeguarding personal assets from company debts. A well-crafted operating agreement ensures your business is recognized as a distinct legal entity, preserving limited liability and protecting your assets.
  • Avoiding state default rules: In Kentucky, your LLC will be regulated by the default clauses of the Kentucky Limited Liability Company Act (KRS 275.001 et seq.) if you do not have an operating agreement [2]. However, by drafting an LLC operating agreement, business owners may set their own regulations instead of adhering to the otherwise established state standards.
  • Improved structure for governance and management: As the projection of 3,626 new businesses expected to form in the next four quarters demonstrates Kentucky's continuing business expansion, it underscores the critical importance of establishing legal frameworks through LLC operating agreements for these emerging entities. An operating agreement defines your firm's governance, member duties, and rights, clarifying decision-making, voting, and profit distribution. Detailing these elements prevents disputes and enables customized, efficient management tailored to your company's needs.
  • Evidence of ownership: An operating agreement defines your firm's governance, member duties, and rights, clarifying decision-making, voting, and profit distribution. Detailing these elements prevents disputes and enables customized, efficient management tailored to your company's needs.
  • Easier dispute resolution: If there is a disagreement among the members of your multi-member LLC and a lawsuit is filed, your operating agreement may specify the appropriate court and jurisdiction, indicating where and how disagreements will be addressed to avoid ambiguity, extra expenses, and unnecessary delay.

FAQs

Can I Write My Own LLC Operating Agreement in Kentucky?

Yes, you can write your own LLC operating agreement in Kentucky if you understand the process and follow the right steps. However, it's important to enlist expert guidance from an attorney and pay a filing fee or use a reliable template from a reputable LLC service.

Does My LLC Operating Agreement Need to Be Notarized?

No, notarization of your Operating Agreement isn't required; it simply requires the signature of each member.

The Operating Agreement becomes legally binding once you, along with any other LLC members, have signed it.

References

  1. https://www.uschamber.com/small-business/new-business-applications-a-state-by-state-view?
  2. state=kyhttps://apps.legislature.ky.gov/law/statutes/chapter.aspx?id=38578

About The Author

Author
Delina Chantel Yasmeh, J.D./Tax LL.M, specializes in Mergers and Acquisitions at Deloitte and PwC, managing billion-dollar transactions. Educated in Accountancy at California State University and holding advanced degrees from Loyola Law School, she is highly skilled in tax law. Delina also dedicates time to pro bono work for women and children.
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Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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