This Maryland LLC Operating Agreement is a document that every Maryland Limited Liability Company should have.
Its purpose is to establish how the company will operate, including the roles of each member in the company, what happens if one of them dies or leaves, and how profits are allocated.
This legal document can be a custom operating agreement tailored to your specific needs.
This article will go over why Maryland LLCs need operating agreements and how to write one depending on what type of business structure your Maryland LLC has.
What Should the Maryland LLC Operating Agreement Contain?
An operating agreement for an LLC in Maryland should not be a complicated, lengthy document. For example, it might contain anything from how much each member will contribute to the LLC, who has voting rights to make decisions for day-to-day operations, whether certain LLC members have greater voting power than others, and so on.
The following are the essential elements of an LLC's operating agreement:
1. Distribution of Profits and Losses
One of the most important issues an operating agreement should address is how profits and losses will be distributed among the LLC's members. This section should state how much of the company each member owns, what percentage of profits or losses each member will receive, and when distributions will be made.
Who makes decisions for the company? How are major decisions made? This section should address how the LLC will be managed and who has the authority to make decisions on behalf of the company.
3. Voting rights
What percentage of votes does each member have, and what issues require a vote by the members? This section should spell out how voting works for the LLC.
When are the deadlines for making decisions? When are distributions made, and when can members withdraw them? This section should state if there is a specific deadline or time frame in which an action must be taken.
5. Capital Contributions
A capital contribution in an LLC is a financial investment made by an LLC member. What is the membership interest each of the members contributes to the LLC when it is formed, and how often do they need to contribute more? This section should state how much capital each member has contributed (or will contribute) to the company.
Members of an LLC can be indemnified from any losses or damages that may arise as a result of their actions as members of the company. This section should spell out what kind of losses or damages are covered and who is responsible for repaying the members.
7. Conflict Resolution
Disputes between members can be costly, time-consuming, and damaging to the company. An operating agreement should include a mechanism for resolving disputes among the members so that courtrooms are not the first place members turn to resolve disagreements.
8. Dissolution Steps
What happens if an LLC is dissolved? It should include a plan for the dissolution of the company and steps to be taken by each member upon it.
Maryland Single-Member LLC Operating Agreement
This type of membership structure has only one LLC member. However, it still needs an operating agreement even though there's only one member. This is because the agreement sets out the member's rights and responsibilities, which can help avoid disputes in the future.
Maryland's default rules will govern the LLC without an operating agreement, which may not be what the member wants.
A single-member LLC can be a great option for business owners who want the personal liability protection of an LLC but don't want to deal with all the paperwork and formalities of having multiple members.
According to the Virginia Limited Liability Company Act, LLCs are not legally required to have an operating agreement.
However, every business entity should have it, and it should address the following issues:
- Business name and the state of establishing
- The principal office address
- The registered agent for the LLC and their address (agent for service of process)
- The type of business the LLC will be engaged in
- The duration of the company or whether it will be perpetual
- The number and class of members (if there is more than one member)
- How profits and losses will be allocated among the members (capital contribution)
- How management will be structured and who has authority to make decisions on behalf of the company (member-managed LLC or manager-managed LLC)
- Dissolution/termination steps
A business owner is free to use an operating agreement template available online or hire a professional to write one for them.
Although LLCs are not legally obligated to create a Maryland operating agreement, the chances are banks will want to see it when setting up a business bank account, applying for loans, or when trying to get credit.
Maryland Multi-Member LLC Operating Agreement
A multi-member LLC in Maryland has more than one owner/member. The members of a multi-member LLC need to have prior written consent as to how the limited liability company will conduct business. The written consent is called the operating agreement.
The purpose of having this document in place is to prevent misunderstandings, save time when dealing with delicate situations, and establish rules to follow so that all the members are on the same page.
At first, each member may agree with how they will operate their LLC, but as time goes on, things can change, and unpleasant situations could arise before long.
These disagreements could lead to costly and drawn-out court battles without an operating agreement.
An LLC operating agreement doesn't have to be a complex document. It can be as simple or as detailed as you want it to be. In most cases, the operating agreement will cover:
- The name of the company
- Members' names
- Management structure (one or more managers)
- Voting rights
- The percentage of ownership each member has
- How profits and losses will be allocated
- How the LLC will be dissolved
If you're a Maryland multi-member LLC, it's important to have an operating agreement in place. This document can help prevent disagreements among members and keep your business running smoothly.
Keep in mind that your Maryland operating agreements will be largely based on the status of the members or managers who run your LLC. The operating agreement template you may download will differ depending on this setup.
Reasons To Have an Operating Agreement
No matter if you are the sole owner of the LLC or you're running an LLC with other members, the future of your company will depend on how well you draft your operating agreement.
A Maryland LLC Operating Agreement is the document that will be instrumental in protecting the internal working relationship between members and their roles and responsibilities within the company and any future inconvenient event, investments, or loans that will take place inside it.
The documents can also handle other issues such as the dissolution of a business or member lawsuits.
The following are some key reasons to have an LLC Operating Agreement:
- To set out the rights and responsibilities of each membe
- To establish rules and procedures for making decisions on behalf of the company
- To provide a framework for dividing profits, losses, and ownership interests
- To document how the company will be managed.
Does Maryland Require an Operating Agreement?
Unlike Maryland Articles of Organization, operating agreements for Maryland LLCs don't have to be filed with the Maryland Secretary of State.
However, it's still a good idea to have one in case there is ever a dispute among members about the LLC's management or operations.
Can a Maryland LLC Operating Agreement Be Changed?
Yes, Maryland LLC operating agreement can be changed by filing an amendment with the state with the Maryland State Department of Assessments and Taxation. The amendment must be signed by all of the LLC's members.
A Maryland LLC operating agreement can also be terminated, but again, this requires the unanimous consent of all members. If an LLC is involuntarily dissolved, its assets will be distributed according to its operating agreement (or, if there is no operating agreement, according to the state law).
Can I Write My Own Operating Agreement in Maryland?
Yes, you can write your own operating agreement in Maryland. However, we recommend that you have an attorney help you with the process to make sure your document is legally compliant.
If you choose to create your own operating agreement, make sure you cover all the essential provisions because this will be a vital part of your LLC formation process.
Does a Maryland LLC Need an Attorney for an Operating Agreement?
No, an attorney is not necessary to draft an LLC operating agreement in Maryland. However, it is strongly recommended that you have a qualified attorney help you with your operating agreement to make sure all of the provisions are included and that the agreement will be effective in case of a dispute.
How to Create an operating agreement for an LLC in Maryland...
Creating an operating agreement for your LLC in Maryland can seem confusing and challenging. However, you must take the time to do everything according to the law - because if not done correctly, this could lead to serious consequences later on down the road.
If you don't find yourself comfortable doing this on your own or know how much work will be involved in creating a legal document like an operating agreement, we recommend hiring a professional with experience drafting these types of agreements.