The LLC operating agreement is an essential document for any LLC in Virginia. A Virginia LLC operating agreement outlines the responsibilities of LLC members, how they are compensated, what happens if a member leaves the company.
It also states who can make decisions on behalf of the LLC and how they are made. This article will go over some important points to include in your Virginia operating agreement and some things that you should avoid when drafting this critical document for your company.
What Should Virginia LLC’s Operating Agreement Contain?
LLC's operating agreement can be a simple document. It can contain anything from how much each member will contribute to the LLC, who has voting rights to make decisions for business actions, whether certain members get more votes than others, etc.
The most important provisions every LLC should have in its operating agreement include:
- Management structure: This should be the first section in your operating agreement. It will outline whether your LLC will be member-managed or manager-managed. Here you will define how business decisions are made and who has voting rights when making these decisions. The LLC members must also agree on whether certain member gets more votes than others or everyone is allowed to vote with equal power
- Member withdrawal: This provision describes what happens when a member wants to withdraw from the LLC. Will they get their money back? Will the LLC continue to operate without them?
- Voting rights: This section determines how voting works within the LLC. Does each member have one vote, or do certain members get more votes than others?
- Distribution of profits and losses: This clause outlines how profits and losses are distributed. Do all members equally share in the profits and losses, or is it based on how much money they put into the business?
- Allocation of management duties: This section specifies who will manage the LLC's day-to-day activities such as bookkeeping, marketing, etc. Will this be done by an internal manager or a hired outside contractor?
- Capital contributions: This provision outlines whether each member is required to contribute a certain amount of money into the LLC when they join. It also specifies what happens if one member does not make their capital contribution fully or on time.
Virginia Single-Member LLC Operating Agreement
Single-member LLCs in Virginia has only one member. That means that the sole owner of a Virginia LLC is also its manager.
While there is no specific statutory form for an operating agreement in Virginia, the document should cover at a minimum the following topics:
- LLC name and the state where it is organized
- The principal place of business for the LLC
- The registered agent for the LLC and his or her address
- The duration of the LLC
- The purpose of the LLC
- Contributions and membership (in case there is an additional member to join the LLC)
- Accounting and records
- Dissolution/terminations procedure
When running a single-member LLC, it seems logical that the operating agreement is almost unnecessary or shouldn't contain as many details.
However, a single-member LLC in Virginia needs an operating agreement just as much as multi-member LLC does.
On top of that, the chances are banks will ask that you have an operating agreement if you decide to open a business bank account or apply for a loan.
You can always search for an operating agreement template online and ensure you have everything in place. Hiring attorneys to help you in the process is highly recommendable.
Virginia Multi-Member LLC Operating Agreement
Operating agreements for a multi-member LLC in Virginia need to be crafted with great care. It is one of the most important steps of LLC formation because it dictates how the LLC will conduct business and how it will manage its affairs.
The operating agreement can also reduce the risk of future intra-LLC disputes by clearly laying out how LLC members are expected to conduct themselves and interact with one another.
Usually, a Virginia multi-member LLC operating agreement is usually written as a formal legal document that specifies each member's duties and responsibilities towards other members and the entire company.
In most cases, Virginia multi-member LLC operating agreements determine and contain:
- The business name
- The registered office and agent
- The purpose of the company
- Management structure
- Allocation of profits/losses among members
- Transferability of membership interest units
- Managers' duties (for one or more managers)
- Dissolution steps
Keep in mind that the rules within your Virginia operating agreements will largely depend on whether members or managers manage your LLC. The operating agreement template you can download will differ based on this fact.
Reasons to Have an Operating Agreement
Business law of the state of Virginia stipulates that LLCs aren't legally required to have an operating agreement.
However, a Virginia operating agreement will not only save time in the event that your LLC is ever sued but can also help prevent disputes among members and protect their interests.
The following are some reasons to have an operating agreement for your Virginia LLC:
- To establish how the business will be managed and operated
- To specify each member's ownership percentage and role in the company
- To outline procedures for admitting, removing, and replacing members and employees
- To set the terms of dissolution in advance
- To determine how profits are distributed to members/managers.
How Do I Change My LLC Operating Agreement in Virginia?
Virginia State Corporation Commission handles all filings for Amendments to LLC Operating Agreements.
In order to file an Amendment, business owners need to submit Virginia LLC Articles of Amendment and pay a $25 filing fee. You can find more information on the State Corporation Commission website.
The processing period can take anywhere from a week to two weeks. Make sure that you check your Virginia LLC records before filing an Amendment, as some information such as the name and address of the registered agent may need updating.
Does Virginia Require an Operating Agreement for a Foreign LLC?
No, there are no regulations that specify the necessity for an operating agreement in Virginia. However, it is still a good idea to have one in place.
Even if your business is registered as a foreign entity, you should have a written agreement among the LLC members that outlines each member's rights and responsibilities, how profits and losses will be allocated, and how the LLC will be managed.
How Long Should an Operating Agreement Be?
There is no one size fits all answer to this question. It is like asking how long a novel should be or what length of time it takes for the food in your restaurant to cook - there are simply too many variables involved, and no one can predict all those factors with much accuracy.
The general rule you will find most professionals agree on is that an operating agreement for a Virginia LLC should be as long as it needs to be, which is usually anywhere between 10 to 25 pages.
If you are not sure how long it will need to be, the best advice is usually to err on the side of caution and make your operating agreement as long as possible so that there isn't any confusion later down the road about what was intended by certain clauses or provisions.
Can I Write My Own Operating Agreement in Virginia?
Yes, you can write your own Virginia LLC Operating Agreement. However, it is always a good idea to have an attorney review it to comply with Virginia law and ensure that the agreement includes all necessary provisions.
If you do not want to draft the agreement yourself, or if you would like help drafting an agreement that meets your specific needs, you can use an online template or hire an attorney.
Does Virginia Require an LLC to Have an Operating Agreement?
No, the laws of Virginia don't require an LLC to have an operating agreement. However, it's highly recommended that you have one in place.
A well-drafted operating agreement can help prevent disputes among members and can provide critical guidance in the event of the death or incapacity of a member.
Do I Need to File LLC Operating Agreement in Virginia?
No, unlike some other states, you don't have to file your Virginia LLC operating agreement with the Virginia Secretary of State. However, it's still a good idea to have one in place.
Is an LLC Operating Agreement the Same as Articles of Organization?
No, an LLC operating agreement should not be confused with articles of organization and formation. Articles of organization are the documents you have to file with your state to create an LLC.
The articles of organization document state the name and registered agent for your company and other administrative details. On the other hand, an LLC operating agreement is a private contract between the owners (members) of an LLC, even if you are the sole member.
An LLC operating agreement is a contract between you and the LLC. The LLC operating agreement will help clarify how the limited liability company should be managed, what happens to any profits or losses, who can vote on major decisions, and more.
There are many different ways to write an LLC operating agreement for your business structure, so it's important that you get assistance from your attorney to make sure that this document has all of the necessary clauses.
If you don't have an operating agreement in place, the Virginia courts will look to the state's default rules to govern your business. The default rules can be found in Title 13.34 of the Code of Virginia, which outlines the responsibilities and share distribution of members not otherwise specified in an operating agreement.