Forming an Connecticut LLC takes a lot of planning. Between the Certificate of Organization, business licenses, the Business Entity Tax, and more, there’s a lot to consider. And paperwork and startup costs aren’t the only necessary tasks. You’ll also want to set up your LLC to run smoothly and avoid legal troubles after it’s been registered with the state.
That’s where the LLC operating agreement comes in.
Time-Saving Hack: There are a handful of online LLC websites that can form an LLC for you and include a free customizable operating agreement. ZenBusiness, though, is the only one that offers a free operating agreement in every package.
What is an LLC Operating Agreement?
An operating agreement gives your business structure and official procedures. It designates ownership, establishes operations, defines member responsibilities, and provides legal protection. Essentially, it lays out everything someone might need to know about your LLC. And it’s an internal document, so there’s no filing or fees involved.
Whether you’re starting a multi-member or single-member LLC, we strongly recommend completing an operating agreement. It’ll benefit and protect you for as long as you’re in business.
Am I Required to Have an Operating Agreement in Connecticut?
No, creating an operating agreement isn’t a prerequisite for LLC formation in Connecticut. That said, having one can be incredibly beneficial for an LLC, as it establishes standard business procedures and provides legal protection.
Maintaining an operating agreement will set your business up to run smoothly in the future. Plus, it will provide a safety net for potential legal disputes, so we strongly recommend that you draft one before commencing business in the state.
Benefits of Creating an Operating Agreement
You want what’s best for your business. Months or years in the future, you want it to be a profitable and thriving endeavor. Having an operating agreement in place will set up your LLC for sustained success.
It requires some legwork, but it’s well worth it. Just look at some of the benefits:
- Officially designates how the ownership is split up (the percentage each member/manager owns), so there are no disputes.
- Standardizes office and company operations to improve efficiency
- Outlines the procedures for member additions and resignations, registered agent changes, dissolutions, and more, so there is no confusion.
- Avoids Connecticut’s “default rules,” which define baseline procedures for any LLC without an operating agreement and aren’t necessarily the best for your business.
- Grants you greater respect from Connecticut courts.
Free Connecticut LLC Operating Agreement
Simply getting started can seem challenging. This is because the Connecticut Secretary of State doesn’t provide an official form.
So, you’ll need to create your own, but don’t be intimidated! You don’t need to be an attorney or expert writer to draft an effective agreement. Plus, you can find plenty of free templates online to help you with the structure and legal terminology. While most of these templates are good options, a great starting point is one that you can get free through an affordable LLC service like ZenBusiness or Northwest Registered Agent.
Whether you’re using a template or starting from scratch, here’s a quick and easy guide for what to include:
Owner or Member Information: Names and mailing addresses.
Company Information: Your LLC’s name, registered office, and principal office.
Registered Agent Information: The name of your registered agent, their address, and contact information.
LLC Formation: The date you filed or will file your Certificate of Organization with the Secretary of State.
Business Purpose: The type(s) of business your LLC will be doing in Connecticut.
Term: How long your LLC in Connecticut will be valid, typically until you file for termination.
Capital Contributions: The amount of money each member has invested in the LLC.
Profits, Losses, and Distributions: How income and debts are allocated among members and methods for distributing funds.
Ownership Percentage: How much of the company each member owns.
Management and Roles: The managerial structure and decision-making processes, naming who is in charge or certain operations.
Compensation: How members/managers are compensated and reimbursed.
Bookkeeping: Accounting procedures and member account policies.
Tax Treatment: Whether your LLC will be taxed as a Sole Proprietorship, Partnership, S-Corporation, or C-Corporation.
Member Additions: The procedure for bringing on new members – how they will be admitted, if they’re entitled to income, any expenses they will owe, their roles, etc.
Member Withdrawal: Procedures for the resignation, expulsion, retirement, or death of an existing member.
Amendment Procedures: How your LLC will approve changes to the operating agreement. Usually, it’s through a majority vote by the members.
Dissolution: What happens when you terminate your LLC. How your members will split up the remaining assets or debts.
You don’t always need to include all of the above. If any don’t apply to your LLC, feel free to leave them out. Still, it’s a good idea to cover as many bases as possible. Even if you’re a single-member LLC, you should consider including as many sections as possible to accommodate future changes. Otherwise, years into the life of your business, you may run into a dispute over something you didn’t include, and you won’t be able to fall back on the operating agreement.
All set? Go ahead and provide each LLC member with a copy so they can read, approve, and sign it. After you’ve revised the document based on any feedback, keep it in your company files. You don’t need to submit a copy to the Secretary of State, so just put it in a safe place for your own future reference.
Making Changes to Your Operating Agreement
For better or worse, your business is going to change. As you begin doing business in Connecticut and, hopefully, raking in profits, the LLC will grow and evolve. It will develop different needs and more complicated processes. Keep everything running smoothly but updating your operating agreement as changes occur.
First, all LLC managers/members must approve the change. To seek approval, follow the guidelines you already outlined in your operating agreement for ratifying amendments.
Because it isn’t recorded with the state, modifying your agreement is as simple as making changes to the Word document or PDF you keep in your own files.
For example: your registered agent resigns and, following Connecticut law, you appoint a registered agent service to take their place. Simply pull up your electronic file, enter the new agent information, save it, and print a copy. Make sure you keep a draft of the previous document as well so you can track the changes you’ve made, just in case the state ever has any questions.
Hiring an Attorney
Worried that you might miss a critical detail? Uncomfortable with legal minutiae? If you want to ensure your operating agreement provides for all possible outcomes and disputes, you might consider hiring an attorney to review it or write it entirely.
Some attorneys have a flat rate for drafting an operating agreement; others bill by the hour. Either way, you’ll only need their assistance for a limited period of time. Use a site like Avvo to find the right fit for your business. Avvo’s database lets you sort by location, rate, and more – it even shows Connecticut lawyers that specialize in LLCs.
Hiring an LLC Formation Service
The LLC formation process, with its forms and fees, might make you want to throw up your hands and surrender. Don’t do that! Instead, consider hiring an online service like ZenBusiness or Northwest Registered Agent.
An online service like we mentioned earlier can quickly take care of all your necessary filings. Plus, they’ll create a customized operating agreement for you!
Given the amount of time you would spend drafting an agreement from scratch, a formation service is worth it. Not only will you receive a meticulously researched and crafted operating agreement, but you’ll also be able to spend more time growing your business, planning your next move, or just relaxing.
Despite the fact that it’s an optional document, Connecticut has laws that define and limit what an operating agreement can and cannot do.
According to the state’s LLC Act Section 34-243d, a company’s operating agreement governs:
- Relations among members and between members and the LLC
- Member/manager rights and duties
- The way the LLC conducts its affairs and activities
- The procedures for decision-making and amending the agreement
The operating agreement has a lot of influence – it can dictate almost any aspect of an LLC’s business activities. But it can’t supplant state or federal law. For example, if your LLC skips an Annual Report or fails to maintain a valid registered agent, your operating agreement cannot make it immune from administrative dissolution. It cannot change state requirements for formation, registered agents, business maintenance, etc. Nor can it “unreasonably restrict” the duties and rights of your LLC’s members. See a full list of restrictions in the LLC Act section linked above.
As long as you obey the state’s guidelines and make your agreement as detailed as possible (so there’s no room for interpretation), your LLC will be prepared to run efficiently and successfully.