No matter how big or small your LLC is, it is important and advisable to have an operating agreement in place. Such an agreement, though not required by the state of Michigan, protects the operations of your LLC. It does so by clearly and precisely laying out the rules for your LLC while bolstering its credibility as a legal unit.

In the absence of an operating agreement, the LLC, including its owner and members, can be held liable in a court.

What Is A Michigan LLC Operating Agreement?

As the name suggests, an operating agreement is a piece of legal document outlining the ownership and operating procedures of an LLC. Having a completed operating agreement that is filed with the state of Michigan will protect the personal and financial assets of the organization’s owners/members from being accessed legally.

This means that they will not be forced to sell/liquidate their personal property to settle a claim. However, they will still be held accountable for any kind of damages. The document also enables members/owners to receive tax benefits.

When Do I Need A Michigan LLC Operating Agreement?

Having an operating agreement in place is necessary for every LLC.

  • To govern an organization’s operating procedures, as per the Section 450.4102(r) of the Michigan Business Statutes.
  • An LLC operating agreement Michigan also comes in handy to prevent/stop any conflict amongst the members. It does so by clearly outlining the roles.
  • In the case of single-member LLC, an operating agreement helps to ensure that the court defends the limited liability status.

What Is Included In A Michigan LLC Operating Agreement?

A Michigan LLC operating agreement must cover all the points listed below. All these points stand true regardless of whether the LLC is a single-member or multi-member unit.

  • Organizational Structure

The Michigan LLC form must clearly outline the hierarchy in the organization, listing the total number of members and the division of power/ownership amongst them.

  • Voting & Management

It is important to put in the draft about the voting powers of the members of the LLC. Generally, each member gets one vote. However, if need be, you can assign more voting power to one or more members. Similarly, mention who will be managing the LLC – a member, the board of members, or a hired resource.

  • Capital Investment

List down the amount invested in the organization by every member.

  • Division of Profit & Loss

Give a detailed description of how profit or loss is divided amongst the members of your organization.

  • Changing Roles & Ownership

Mention the process that will be followed for the transference of role/ownership in case a member leaves the organization. Also, the process to be followed for buying out or replacing a member in the structure.

  • Dissolution

A process, hypothetical or otherwise, must be laid out outlining the steps of dissolving the organization.

FAQs

Is an operating agreement necessary?

Yes. Though the state does not mandate it, it prevents your organization in the event of a change or an issue.

What is the right time to create the agreement?

It is advisable to get the operating agreement in place even before the Michigan LLC Articles of Organization is filed. Although, it can be filed at a later date as well.

Is it necessary to file the agreement with the state?

No, it is not required to file the agreement with the state. However, it must remain with the LLC members.

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